Why Do FIs Face a Return or Interest Earnings Penalty

question 19

Multiple Choice

Why do FIs face a return or interest earnings penalty by holding large amounts of assets such as cash, T-bills, and T-bonds to reduce liquidity risk?

• A)These assets carry a reserve requirement tax.
• B)These assets offer low returns.
• C)These assets offer higher returns that reflect their risk.
• D)Inflation increases the purchasing power value of these assets.
• E)All of the options.

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Definitions:

Cleaning Compulsion

A common compulsion in which people feel compelled to keep cleaning themselves, their clothing, and their homes.

Rubber Gloves

Protective gloves made of rubber or a similar material, used to protect the hands from chemicals, infectious agents, and other potentially harmful substances.

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A behavior pattern where an individual consistently seeks to avoid social interactions or situations that require engagement with others.

Obsessive Thought

Persistent, unwanted, and intrusive thoughts that cause significant anxiety and distress.