Question

1. The largest item on the combined balance sheet of US commercial banks is:

Select one:

a. Cash

b. Securities

c. Loans

2.

There is an inverse relationship between the level of a bank’s equity capital and its most common measure of profitability.

Select one:

True

False

3.

Nonfinancial firms finance the vast majority of their investment through:

Select one:

a. Banks

b. Internal funds

c. Financial markets

Answer 1

Answer-1

Correct Option-c. Loans

Reason- Generally in the US commercial banks , out of total assets, about 60-70% comprises of loans.

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Answer-2

Correct Option- True

Reason:-Common measure of profitability of banks is ROA or Return on asset.

ROA= [net income/ Total assets]

if banks equity capital will increase then its total assets will also increase, which will leads to less ROA.

Hence there is an inverse relation between the level of a bank’s equity capital and its most common measure of profitability.

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Answer-3

Correct Option- a. Banks

Reason-Major non financial firms relay on the banks to finance their Invesetments. Because their internal funds will be less and it is bit difficult to raise the funds from the financial markets.

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