In Standard Circumstances a Firm ________ When Its ________

question 66

Multiple Choice

In standard circumstances a firm ________ when its ________. In financial markets this approach did not work following the ________.

• A) files for bankruptcy; liabilities exceed its assets; collapse of Lehman Brothers
• B) sells its assets at fire sale prices; profits are negative; AIG debacle
• C) increases its risky holdings; revenues fall; volatility of exchange rates in Japan
• D) borrows liquidity from the Fed; leverage ratio rises above 75; passage of the TARP legislation
• E) outsources its labor; net revenues are negative; purchase of Merrill Lynch by the Bank of America

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Definitions:

Budget Line

A graphical representation of all possible combinations of two goods that can be purchased at given prices and within a given budget.

Interest Rate

The percentage at which interest is paid by borrowers for the use of money that they borrow from a lender.

Inflation Rate

The percentage increase in the general level of prices for goods and services over a certain period, reflecting the decreasing purchasing power of money.

Rational Person

An individual who systematically and logically evaluates options to make decisions that maximize their personal benefit or utility.