Final answer:
The extent of fictitious loans by a loan officer is least likely to be detected by simply analyzing the number of loans they make. Other methods, such as reconciliation of loans to the ledger, monetary volume analysis, and external audits, are more effective in identifying such fraud.
Step-by-step explanation:
The extent of loans made to fictitious borrowers by the loan officer is least likely to be discovered by analyses of the number of loans made by each loan officer. While this metric can indicate activity levels, it does not necessarily reveal the quality or legitimacy of the loans. On the other hand, reconciliation of total loans outstanding to the general ledger balance, analysis of the total monetary volume of loans by the loan officer, and external audits of loan files are more robust methods that could potentially uncover discrepancies caused by loans issued to fictitious borrowers.
Banks manage their risk of borrowers not repaying loans by factoring in expected defaults into their planning. Assets on a bank's balance sheet, such as cash in vaults, reserves at the Federal Reserve, loans to customers, and bonds, may not all be immediately available as liquid assets because they include amounts lent out to borrowers and investments that might not be readily convertible to cash.
When buying loans in the secondary market, the price one is willing to pay can be affected by borrower reliability and interest rates. A loan with frequent late repayments signifies higher risk, reducing its value. Conversely, loans become more valuable when the current interest rates fall below the loan's rate or if the borrower, such as a profit-declaring firm, demonstrates enhanced creditworthiness.