Suppose That a Bank Initially Has a Leverage Ratio of 8

question 62

Multiple Choice

Suppose that a bank initially has a leverage ratio of 8 to 1. If this bank increases its capital by $1 million and its assets by $10 million, then the bank's:

• A) risk increases and its leverage decreases.
• B) liabilities decrease and its leverage increases.
• C) leverage decreases and its liabilities increase.
• D) leverage and risk increases.

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Definitions:

Physical Count

An actual count of merchandise or inventory on hand, often conducted at the end of an accounting period to verify the accuracy of records.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.

Net Realizable Value

Net Realizable Value is the estimated selling price of goods, minus the estimated costs of completion and necessary selling costs, used for inventory valuation and accounts receivable.

Inventory

The merchandise and supplies a company maintains with the end purpose of selling or manufacturing.