The Reason FIs Can Offer Highly Liquid, Low Price-Risk Contracts

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) because FIs have a cost advantage in monitoring their portfolios.
E) All of these.