When comparing banks and mutual funds, mutual funds have:
A)more liquidity risk than banks because all shareholders share the loss of value on a pro rata basis
B)less liquidity risk than banks because all shareholders share the loss of value on a pro rata basis
C)more liquidity risk than banks because all shareholders have the ability to withdraw their money on a 'first come first served' basis
D)the same liquidity risk as banks because both shareholders and depositors share the fall in the loss of value on a pro rata basis

Question

Quizplus · Accepted Answer

Mutual funds have less liquidity risk than banks because all shareholders share the loss of value on a pro rata basis. This means that if some shareholders decide to cash out, the remaining shareholders are not directly affected as the value of their shares remains the same. In contrast, if depositors withdraw money from a bank, it can create a liquidity crisis for the bank as they may not have enough cash on hand to meet all the withdrawal requests at once.

When Comparing Banks and Mutual Funds, Mutual Funds Have