Which of the Below Statements Is TRUE

question 27

Multiple Choice

Which of the below statements is TRUE?

• A) A depository institution seeks to earn a positive spread between the assets it invests in (deposits and other sources) and the cost of its funds (loans and securities).
• B) Interest rate risk refers to the risk that a borrower will default on a loan obligation to the depository institution or that the issuer of a security that the depository institution holds will default on its obligation
• C) Regulatory risk is the risk that regulators will change the rules so as to adversely impact the earnings of the institution.
• D) If the spread will be positive, it will cost the depository institution more to finance the government securities than it will earn on the funds invested in those securities.

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Definitions:

Capital Account Balances

The amounts in the accounts of partners or shareholders representing their contributions plus their share of net income or minus their share of losses.

Predistribution Plan

A strategic plan detailing how assets or profits will be allocated or distributed before the actual distribution takes place.

Profits and Losses

The financial gains or losses resulting from business operations after accounting for revenues and expenses.

Capital Account Balances

The amounts recorded in the equity section of a company's balance sheet that represent the owners' stakes.