A Vicious Cycle of Deleveraging Occurs When

question 136

Multiple Choice

A vicious cycle of deleveraging occurs when:

• A)asset sales to cover losses produce negative balance sheet effects and force creditors to call in loans, forcing more sales of assets at decreasing prices.
• B)bank regulators take over a bank.
• C)deposit insurance is paid out.
• D)top executives at failing companies are forced to return bonuses.

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Definitions:

Dividends

Funds disbursed by a company to its stockholders, originating from the firm's profits.

Stockholders

Individuals or institutions that own shares in a corporation, making them owners of the company.

Equity

The value of an owner's interest in a property, calculated by subtracting liabilities from the value of the asset.

Liabilities

Debts or economic duties a business has to external parties, requiring repayment through the exchange of money, goods, or services over a period.