A Bank Run Can Break a Bank Because

question 178

Multiple Choice

A bank run can break a bank because:

• A) borrowers default on their loans,and the bank's assets become worthless.
• B) banks cannot quickly convert illiquid loans to liquid assets without facing a large financial loss.
• C) depositors' panic spreads to borrowers,who want to take additional loans from the bank.
• D) the bank's reserves kept with the Bank of Canada are in the form of illiquid Canadian Treasury bonds.

---

Definitions:

Required Rate

typically refers to the minimum expected rate of return on an investment, necessary for it to be considered a viable option.

Required Rate

The minimum anticipated return an investor expects to achieve on an investment.

Annual Cash Flows

The net amount of cash and cash equivalents being transferred into and out of a business over a year, reflecting its operational efficiency and financial health.

Crossover Point

The point at which two or more alternative investments achieve the same cumulative cash flow or rate of return.