Regulatory Capital Arbitrage Is a Means of

question 35

Multiple Choice

Regulatory capital arbitrage is a means of

• A)using borrowed funds to increase the returns that can be earned with a given amount of capital.
• B)specifying the amount of capital that financial institutions should hold based on the riskiness of their different assets.
• C)determining mortgage rates for sub-prime borrowers.
• D)changing the composition of assets in such a way as to lower the overall amount of capital a financial institution holds for a given level of assets.

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Definitions:

Labor

The human effort, either physical or mental, that is expended in the production of goods or services.

Factor Prices

Prices paid for the use of factors of production, such as labor, land, and capital, important in understanding cost structures and economic value added.

Production Function

An economic model that describes the relationship between inputs used in production and the resulting output.

Average Cost

The total cost of production divided by the number of goods produced, also known as cost per unit.