A Bank Has Book Value of $5 Million in Liquid

question 28

Multiple Choice

A bank has book value of $5 million in liquid assets and $95 million in nonliquid assets. Large depositors unexpectedly withdraw $9.5 million in deposits. To cover the withdrawals the bank sells all of its liquid assets at book value. To raise the additional funds needed the bank sells the necessary amount of nonliquid assets at 80 cents per dollar of book value. As a result,the bank's equity will ________.

• A)remain unchanged
• B)fall $4.5 million
• C)fall $3.6 million
• D)fall $1.4 million
• E)fall $5.0 million

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Definitions:

UCC

Uniform Commercial Code, a comprehensive set of laws governing commercial transactions in the United States.

Endorsement

A signature or statement of support for a policy, idea, or candidate, or in the context of financial instruments, the act of signing over rights to another party.

Digital Cash

Money stored electronically and used in place of physical currency.

Electronic Funds

Money that is moved electronically from one bank account to another.