18-71 the Concept of Constrained Optimization Facing an FI Manager

question 80

Multiple Choice

18-71 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 above.

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Definitions:

Flowering Plants

Plants that belong to the group Angiosperms, characterized by bearing flowers in which seeds are enclosed within a fruit.

Mammals

A class of warm-blooded vertebrate animals that possess hair or fur, and whose females produce milk for feeding their young.

Insects

Small arthropods belonging to the class Insecta, characterized by three-part bodies, usually two antennae, and compound eyes.

Amphibians

Cold-blooded vertebrates that live both in water and on land at different stages of their life, such as frogs and salamanders.