One Way for a Bank to Deal with Credit Risk

question 5

Multiple Choice

One way for a bank to deal with credit risk is to:

• A) charge all borrowers from the same industry an average rate for that industry.
• B) add a mark-up for a specific borrower based on the borrower's credit history to the cost of funds.
• C) avoid making loans to borrowers from a broad spectrum and to specialize geographically and in specific industries.
• D) increase the number of loans made in any year.

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Definitions:

Labor Demand

The total amount of workers that employers in the economy want to hire at any given wage rate.

Price Change

A shift in the cost at which goods or services are sold, either increasing or decreasing in amount.

Price Elastic

The degree to which the quantity demanded of a product changes in response to a change in its price.

Capital

Capital refers to financial assets or the financial value of assets, such as funds held in deposit accounts, as well as the tangible machinery and production equipment used in environments such as factories and other manufacturing facilities.