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:

Sales Returns

Transactions where customers return previously purchased merchandise for a refund, replacement, or credit toward future purchases.

Credit Sales

Sales made on credit, where the payment is received after the delivery of the goods or services.

Contra-Revenue

An account that offsets revenue accounts on the income statement, typically related to returns, allowances, and discounts.

Credit Sale

A transaction where goods or services are provided to a customer with the agreement that payment will be made at a later date.