If the Value of Bank's Loans Declines,what Is the Corresponding

question 45

Multiple Choice

If the value of bank's loans declines,what is the corresponding reduction in a liability entry that the bank makes?

• A) Deposits are reduced by the amount of the decline in the value of the loan.
• B) Borrowings are reduced by the amount of the decline in the value of the loan.
• C) Net worth is reduced by the amount of the decline in the value of the loan.
• D) Cash items in the process of collection are reduced by the amount of the decline in the value of the loan.

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Definitions:

Von Neuman-Morgenstern

Refers to the theory of expected utility, formulated by John von Neumann and Oskar Morgenstern, which addresses choices made under conditions of risk.

Expected Utility Function

A mathematical expression that represents a consumer's preference for uncertain outcomes, weighting each outcome by its probability of occurrence.

Von Neuman-Morgenstern Utility Function

A utility function that accounts for the existence of risk and uncertainty, allowing for the calculation of expected utility.

Wealth

The total value of all assets owned by an individual, community, company, or country, minus any liabilities.