A Bank Can Reduce the Impact of a Default Risk

question 39

Multiple Choice

A bank can reduce the impact of a default risk by

• A)having assets with the same time to maturity.
• B)making risky loans at low interest rates.
• C)making safe loans at high interest rates.
• D)diversifying its portfolio.

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Definitions:

Beginning Balance

The amount of money or value available in an account at the start of a new financial period.

Ending Balance

The amount of money or value in an account at the end of a financial period.

Cash Dividend

A payment made by a company out of its profits to its shareholders, usually in the form of cash.

Bonds Payable

Long-term liabilities represented by bonds that a company has issued, which it is obligated to pay back at a future date along with interest payments.