The Leverage Ratio of an Investment Firm Refers to

question 75

Multiple Choice

The leverage ratio of an investment firm refers to

• A) the ratio of its investment holdings relative to its vault cash.
• B) the ratio of its investment holdings relative to its capital.
• C) the percentage of deposits held by the firm relative to its deposits with Federal Reserve banks.
• D) the percentage of down payments made to the investment firm relative to the size of mortgages issued by the firm.

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Definitions:

Retractable Bond

Bond that may be sold back to the issuer at a prespecified price before maturity.

Debenture

An unsecured loan certificate issued by a company, backed only by the general creditworthiness and reputation of the issuer.

Default Risk

The likelihood that a debtor may not fulfill their debt contract obligations.

Yield Maturity

The term generally refers to the date when a bond or other fixed-income security matures, at which point the issuer is obligated to pay the principal amount back to the bondholders.