If a Local Bank Decides to Convert Some of Its

question 53

Multiple Choice

If a local bank decides to convert some of its U.S.Treasury securities into cash,which it will hold in its vault,what impact will this have on the bank's balance sheet?

• A) Reserves would increase, liabilities would stay the same, and owner's equity would decrease.
• B) Reserves would increase, liabilities would stay the same, and owner's equity would increase.
• C) Reserves would decrease, liabilities would decrease, and owner's equity would decrease.
• D) Reserves would decrease, liabilities would stay the same, and owner's equity would decrease.
• E) Reserves would stay the same, liabilities would increase, and owner's equity would decrease.

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Definitions:

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable, inventories, and meeting other short-term liabilities.

Long-Term Investment

Financial assets or securities that are held for an extended period, typically for several years or more, with the expectation of substantial returns.