The Leverage Ratio of an Investment Firm Refers to

question 75

Multiple Choice

The leverage ratio of an investment firm refers to

• A) the ratio of its investment holdings relative to its vault cash.
• B) the ratio of its investment holdings relative to its capital.
• C) the percentage of deposits held by the firm relative to its deposits with Federal Reserve banks.
• D) the percentage of down payments made to the investment firm relative to the size of mortgages issued by the firm.

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Definitions:

Immunization Strategies

Financial strategies used to shield a bond portfolio from the effects of interest rate fluctuations by balancing the duration of assets and liabilities.

Interest Rate Sensitivity

The degree to which the value of an investment, particularly fixed-income securities, changes in response to variations in interest rates.

Duration

A measure of the sensitivity of the price of a bond or a bond portfolio to changes in interest rates, usually expressed in years.

Interest-Rate Risk

The risk that an investment's value will change due to a change in the absolute level of interest rates, which can affect both debt and equity instruments.