Which of the statements below is true? 1) An FI will earn fees when arranging a...

Which of the statements below is true?

1)	An FI will earn fees when arranging a large loan, even if it sells part or all of the loan later.

2)	Like reserve requirements, the capital adequacy requirements imposed on FIs are a burden as long as required capital exceeds the amount the FI believes to be privately beneficial.

3)	In addition to credit risk and interest rate risk, holding loans on the balance sheet can increase the overall illiquidity of an FI's assets.

4)	All the listed options are correct.

Expert Solution

The correct answer will be option (d) All the listed options are correct. It is because an FI will always earn fees while arranging a large loan even if it sells part or all of the loan later, the capital adequacy requirements imposed on FIs like reserve requirements are a burden as long as required capital exceeds the amount the FI believes to be privately beneficial and holding loans on the balance sheet can increase the overall illiquidity of an FI's assets in addition to credit risk and interest rate risk. Ans so all the options are correct. The other options (a), (b) and (c) are not marked correct individually because all of them are correct jointly.

ekkarill92 answered 2 years ago

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