Final answer:
A contra asset account is credited to reflect its credit balance, which opposes the corresponding asset account. Money under assets on a bank's balance sheet may not all be physically at the bank since it includes loans owed to the bank. The value paid for loans in the secondary market depends on the borrower's payment history, changes in interest rates, and the financial health of the borrowing entity.
Step-by-step explanation:
The contra asset account is credited because it has a credit balance. This is because contra asset accounts are meant to offset an asset account. A common example of a contra asset account is Accumulated Depreciation, which reduces the value of the asset it offsets, such as equipment or buildings, on the balance sheet.
The money listed under assets on a bank balance sheet may not actually be present in the bank because these assets include loans made to customers, which are the bank's financial instruments where others owe money to the bank. Furthermore, the bank uses customers' deposits to make more loans, which means not all deposits will be present as liquid cash in the bank at any given time due to this lending activity.
Buying loans in the secondary market requires careful evaluation of the risks and returns. As a buyer, you may pay less for a loan if the borrower has been late on a number of payments, indicating a higher risk of default. Conversely, if interest rates rise, existing loans with lower rates become less valuable, and you would pay less. However, if the borrower is a firm that has just reported high profits, this reduces the risk, making the loan more valuable. Lastly, if interest rates fall, loans made at higher rates become more desirable, so you'd be willing to pay more.