Which of the Following Is a Consequence of Deposit Insurance

question 153

Multiple Choice

Which of the following is a consequence of deposit insurance?

• A) It may induce the officers of a bank to take more risks.
• B) It encourages banks to make loans only to the most credit-worthy customers.
• C) It minimizes the risk of defaulting on loans made to the bank's customers.
• D) It encourages depositors to closely scrutinize a bank's lending activities.

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Definitions:

Revaluation Decrement

The process of decreasing the recorded value of an asset to reflect its current market value, often recognized in financial reporting.

Cash-Generating Unit

The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Impairment Loss

The amount by which the carrying amount of an asset exceeds its recoverable amount.

Net Carrying Amount

The value at which an asset is recognized on the balance sheet after deducting accumulated depreciation and impairment losses.