Discuss the effect leverage has on a bank’s profit.
What will be an ideal response?
Leverage allows banks make investments using only a portion of shareholder money to fund loans and other investments. The other portion is from checking and savings deposits (loans from depositors to the bank). Banks use significant leverage when funding investments. A small loss can lead to a difficult situation for banks when leverage is used, possibly leading to insolvency. Even with this risk many banks use leverage since it is very profitable. Bailouts from the government, to cover losses, can also make using leverage more attractive.
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When only a specified amount of a good can be imported into a country during a year, that good is subject to a(n)
A. subsidy. B. tariff. C. quota. D. export restriction.
When spending is greater than output, firms will experience falling inventories, and prices of goods and services will rise.
Answer the following statement true (T) or false (F)
An effort by the Fed to reduce aggregate demand may be thwarted because
A) investment could remain the same or increase because of optimistic expectations by businesses about the future of the economy. B) investment and interest rates are positively related. C) investment could fall because of pessimistic expectations. D) taxes may have been increased.
If the Fed raises the discount rate, what will be the effect on the money supply?
A. It will decrease the money supply. B. It will increase the money supply. C. No change in the money supply D. Not enough data to give an answer