Which of the Following Statement(s) About Financial Distress Is(are) True

question 30

Multiple Choice

Which of the following statement(s) about financial distress is(are) true:
I. always ends in bankruptcy
II. firms can postpone bankruptcy for many years
III. ultimately the firm may recover and avoid bankruptcy altogether

• A) I only
• B) II only
• C) II and III only
• D) III only

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Definitions:

Simple Money Multiplier

A formula that determines the maximum amount of money that banks can create with a given level of reserves.

Excess Reserves

Banks' reserves that exceed the minimum required by the central bank, available for lending or investment.

Interest Rate

The price, expressed as a percentage of the principal, that a borrower must pay a lender for the use of funds.

Excess Reserves

are bank reserves held in excess of what is required by the central bank, which can be lent out to earn interest.