Why Do FIs Face a Return or Interest Earnings Penalty

question 16

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.

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Definitions:

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