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.

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Definitions:

Health Care Industry

Comprises sectors that provide goods and services to treat patients with curative, preventive, rehabilitative, and palliative care.

Asymmetric Information

A situation in which one party in a transaction has more or better information than the other, leading to imbalances in transactions.

Supplier-Induced Demand

Supplier-induced demand occurs when providers of a good or service influence consumers' demand for it, often seen in markets where providers have more information about the product than consumers.

Raising Deductibles

Increasing the amount that an insured individual must pay out of pocket before an insurance company pays a claim.