The Reason FIs Can Offer Highly Liquid, Low Price-Risk Contracts

question 31

Multiple Choice

The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is:

• A)because diversification allows an FI to predict more accurately the expected returns on its asset portfolio
• B)significant amounts of portfolio risk are diversified away by investing in assets that have correlations between returns that are less than perfectly positive
• C)because individual savers cannot benefit from risk diversification
• D)All of the listed options are correct.