What Is the Difference Between the Average Interest Banks Earn

question 19

Multiple Choice

What is the difference between the average interest banks earn on assets and the average interest rate paid on liabilities?

• A) spread
• B) loss
• C) gain
• D) change

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Definitions:

Unrealized Loss

A financial situation where an investment holds a lower market value than its purchasing price, yet the investor has not actually sold it to incur a realized loss.

Amortized Cost

The initial investment cost adjusted for amortization or depreciation over the period of the investment.

Effective Interest Rate

The real cost of borrowing after adjusting for compounding interest and all fees. It provides a more accurate representation of the actual financial charge associated with a loan.

Trading Security

A financial instrument that is bought and sold for the purpose of generating profits on short-term fluctuations in price.