Why Do FIs Face a Return or Interest Earnings Penalty

question 112

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 above.

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Definitions:

Desert

A barren or desolate area, especially one with little water and sparse vegetation, typically receiving less than 25 cm of precipitation a year.

Small Leaves

Leaf adaptation that reduces surface area to minimize water loss, typically found in plants living in dry or windy environments.

Girdling

A horticultural technique in which a ring of bark from a tree or plant is removed, disrupting the flow of nutrients and sometimes used to enhance fruit production or kill the plant.

Phloem Sap

The sugar-rich liquid transported by the phloem tissues of plants, providing nutrients to different parts of the plant.