1.

Which of the following statements is true?

A.

The stock of liquid assets held in an FI's balance sheet will not depend on the FI's willingness to trade off liquidity against capital, it will depend, however, on its ability to borrow.

B.

None of the listed options is correct.

C.

The stock of liquid assets held in an FI's balance sheet will neither depend on the FI's willingness to trade off liquidity against returns, but on its ability to initiate fire sale.

D.

The stock of liquid assets held in an FI's balance sheet will depend on the FI's willingness to trade off liquidity against returns but not on its ability to issue more loans.

E.

2.The stock of liquid assets held in an FI's balance sheet will depend on the FI's willingness to trade off liquidity against returns and on its ability to issue more loans.

Which of the following statements is true?

A.

The minimum risk portfolio does not generate the highest returns and is thus likely to be chosen by risk-averse FI managers

B.

The minimum risk portfolio generates the highest returns and is thus likely to be chosen by risk-seeking FI managers.

C.

The minimum risk portfolio does not generate the highest returns and is thus likely to be chosen by risk-indifferent FI managers

D.

The minimum risk portfolio does not generate the highest returns and is thus likely to be chosen by risk-seeking FI managers.