19-76 Subordinate Debt (SD)has Been Proposed as a Means of Increasing

question 39

Multiple Choice

19-76 Subordinate debt (SD) has been proposed as a means of increasing the degree of overall market discipline at a depository institution.Which of the following objectives is considered to be achievable when attempting to increase market discipline?

• A)Issuing SD might increase the size of the DI's capital cushion.
• B)The expected cost of issuing SD should decrease as the risk of the DI increased.
• C)Mandatory SD would reduce transparency at DIs.
• D)SD would further emphasize the use of capital forbearance.
• E)Secondary market yields on the SD would be inversely related to an increase in the risk of the DI.

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including materials and labor.

Accounts Payable

Liabilities or amounts owed by a company to suppliers for goods and services received but not yet paid for.

Inventory

The total amount of goods and materials held by a company, intended for sale or production.

Investing Transactions

Activities related to the acquisition or disposal of long-term assets and investments not included in cash equivalents within a company.