SIE Understanding Products and Their Risks Question 60: Answer and Explanation

Question: 60

Which of the following is correct regarding Local Government Investment Pools (LGIPs)?

• A. They are mutual funds.
• B. Multiple state agencies or municipalities may pool their cash reserves into an LGIP.
• C. LGIPs are established under federal securities laws.
• D. LGIPs do not provide diversification.

Correct Answer: B

Explanation:

B: Choice B is correct because this is the primary purpose of LGIPs, so cash reserves may be available on short notice, with a favorable rate of return. Choice A is incorrect because LGIPs are developed by one or more government entities for use by governmental entities. Mutual funds are developed by companies for the use of the general public. Choice C is incorrect because LGIPs are formed according to a given state's laws. Choice D is incorrect because LGIPs do provide diversification.