The Concept of Constrained Optimization Facing an FI Manager Involving

question 63

Multiple Choice

The concept of constrained optimization facing an FI manager involving the minimum amount of liquid reserve assets required by regulators may

• A)penalize the FI if the minimum amount is less than the amount warranted by the actual withdrawal risk.
• B)benefit the FI if the minimum amount is more than is warranted by actual withdrawal risk.
• C)lead to increased withdrawals by depositors that do not meet the minimum requirement.
• D)assist the FI manager by providing an optimal target amount of reserves that will exactly match withdrawal expectations.
• E)None of the options.

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Definitions:

Common Stock

A type of security that represents ownership in a corporation, giving shareholders voting rights and potential dividends.

Bid-Ask Spread

The difference between the highest price that a buyer is willing to pay (bid) for an asset and the lowest price that a seller is willing to accept (ask).

Dealer

An individual or firm in the financial services industry who buys and sells securities for their own account, whether through a broker or otherwise.

Buy and Sell

The basic actions in trading and investing where "buy" refers to acquiring an asset, and "sell" indicates disposing of an asset.