What Is the Leverage Implied by the Bank Balance Sheet

question 55

Multiple Choice

What is the leverage implied by the bank balance sheet listed below?
$\begin{array}{c}\begin{array}{lr}\text { Assets }\\\text { Reserves } & \$ 19,000,000 \\\text { Loans Outstanding } & \$ 2,000,000 \\\hline \text { Total } & \$ 21,000,000\\\\\\\end{array}\begin{array}{lll}\text { Liabilities \& Net Worth }\\\text {Checking deposits}& \$ 20,000,000\\\\\text { Net Worth }\\\text {Stockholders' Equity}& \$ 1,000,000\\\hline \text { Total}& \$ 21,000,000 \\\end{array}\end{array}$

• A) 10-to-1
• B) 12-to-1
• C) 20-to-1
• D) 21-to-1

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Definitions:

Ethical Theory

A systematic exposition of principles or standards of moral conduct that guide individuals in deciding right from wrong behaviors.

Absolutism

A political doctrine and practice where a single ruler or government holds absolute power, without legal, electoral, or social checks and balances.

Ethical Relativism

The theory that holds that morality is relative to the norms of one's culture, meaning that what is considered morally right or wrong varies from society to society.

Consequentialism

An ethical theory that judges whether something is right or wrong based on the consequences of the action, rather than the action itself.