All but One of the Following Is Associated with Bank

question 7

Multiple Choice

All but one of the following is associated with bank failure:

• A) banks hold illiquid assets and reserves that are but a fraction of total deposits.
• B) assets may rise in value more quickly than liabilities when interest rates change.
• C) excessive loan losses may erode net worth.
• D) asset values fall below the value of liabilities.

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Definitions:

Green Shoe Provision

A clause in an underwriting agreement that allows underwriters to buy and sell additional shares than originally planned.

Protective Covenant

Part of the indenture limiting certain transactions that can be taken during the term of the loan, usually to protect the lender’s interest.

Preemptive Right Provision

A clause in a contract that gives existing shareholders the right to buy new shares before the company offers them to the public, in order to maintain their fractional ownership.

Private Placements

The sale of securities directly to a limited number of private investors rather than through a public offering in the open market.