A Bank with Assets Worth Less Than Liabilities Is Said

question 49

Multiple Choice

A bank with assets worth less than liabilities is said to be _____, while a bank without adequate funds immediately available to make promised payments is said to be _____.

• A) inflated; inverted
• B) inverted; inflated
• C) insolvent; illiquid
• D) illiquid; insolvent

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Definitions:

Contingent Liability

A potential financial obligation that may occur in the future depending on the outcome of a specific event, not confirmed to exist or be measurable until one or more conditions are fulfilled.

Liability

A financial obligation or debt owed by an individual or company.

Accrual

The accounting method that records revenues and expenses when they are incurred, regardless of when cash transactions occur.

Onerous Contracts

Contracts in which the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.