When Leverage Is High

question 225

Multiple Choice

When leverage is high,

• A)economic agents must have nearly all money in hand to purchase assets, causing asset prices to rise.
• B)economic agents can purchase assets with very little money down, causing asset prices to rise.
• C)economic agents must make down payments (known as the margin or haircut)in proportion to the value of the asset.
• D)major Wall Street investment banks will exceed historic leverage ratio levels.
• E)future asset prices become more certain inducing more purchases of financial assets.

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Definitions:

Backflow

The flow of a fluid in a direction opposite to its usual or intended direction, often causing contamination or malfunction in plumbing or in bodily systems.

Valves

Structures present in the heart and veins that maintain unidirectional flow of blood by opening and closing in response to pressure differences.

Venous Valves

Structures within veins that prevent the backward flow of blood, crucial for blood returning to the heart.

Tunica Media

The middle layer of the wall of a blood vessel consisting mainly of smooth muscle cells and elastic fibers, responsible for regulating the diameter of the vessel.