Which of the following is true? Bank A has an operating risk ratio of 30% and...

Which of the following is true? Bank A has an operating risk ratio of 30% and Bank B has an ORR of 35%, which means _____.

a.	Bank B has lower risk
	b.	Bank A has higher earning assets
	c.	Bank B pays lower taxes
	d.	Bank A has more noninterest income
	e.	none of the above

Expert Solution

Operating Risk Ratio = [Operating expenses LESS Depreciation]/Gross Operating Income

ORR indicates nothing about Risk.

If Bank B pays lower Taxes, its Operating Expense would be less and ORR should also be less.

Interest Income is NOT an Operating Income. Therefore, it is not a part of calculation at all.

If Bank B has hogher earning assets, its depreciation would be more, and that will reduce its Operating Expense LESS Depreciation. Therefore, ORR will also be lower.

Therefore, (B) Bank A has Higher Earning Assets.

jeff jeffy answered 2 years ago

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