A Financial Institution Becomes Insolvent When the Value of Its

question 32

Multiple Choice

A financial institution becomes insolvent when the value of its:

• A)assets falls below its liabilities.
• B)net worth becomes negative.
• C)capital becomes negative.
• D)All of the Answer s are correct.

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Definitions:

Operating Leverage

A measure of how sensitive a company's operating income is to a change in sales, indicating the impact of fixed costs on profits.

Contribution Margin

The amount by which sales revenue exceeds variable costs, used to cover fixed costs and generate profit.

Break-Even Point

The point at which total costs equal total revenue, meaning the business does not make a profit or loss.

Degree of Operating Leverage

A financial metric that measures the sensitivity of a company's operating income to its sales, indicating the proportion of fixed to variable costs.