18-71 The concept of constrained optimization facing an FI manager involving the minimum amount of liquid reserve assets required by regulators may

Question

Quizplus · Accepted Answer

Constrained optimization refers to the process of finding the optimal solution to a problem subject to constraints or limitations. In the case of an FI manager, the minimum amount of liquid reserve assets required by regulators is a constraint or limitation that must be considered when optimizing the FI's performance. If the minimum amount is less than the amount warranted by the actual withdrawal risk, the FI may be penalized by not holding enough reserves to cover expected withdrawals. Therefore, the concept of constrained optimization may penalize the FI if the minimum amount is less than the amount warranted by the actual withdrawal risk, as stated in option A. The other answer choices are not accurate descriptions of the concept of constrained optimization in this context.

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