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.

Question

Quizplus · Accepted Answer

Holding large amounts of cash, T-bills, and T-bonds offer low returns which can lead to an interest earnings penalty for FIs.

Why Do FIs Face a Return or Interest Earnings Penalty