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:

Digestive Tract

The digestive tract is a series of hollow organs joined in a long, twisting tube from the mouth to the anus, where food is broken down into nutrients.

Extraembryonic Membranes

Membranes that are not part of the embryo but provide protection and support, including the amnion, chorion, yolk sac, and allantois.

Placenta

An organ that develops in the uterus during pregnancy, supplying oxygen and nutrients to the fetus and removing waste products via the umbilical cord.

Endodermal

Pertaining to the innermost layer of the embryonic germ layers, which gives rise to the lining of the digestive and respiratory systems.