Question

Decide whether each of the following statements, regarding the classified balance sheet, is true or false.

Answer 1

The money listed under assets on a bank balance sheet may not actually be in the bank because it represents the bank's claims on assets that are tied up in loans or other investments. When buying loans in the secondary market, the willingness to pay more or less for a given loan depends on factors such as the borrower's payment history, interest rates, and the borrower's financial performance.

Step-by-step explanation:

5. The money listed under assets on a bank balance sheet may not actually be in the bank because it represents the bank's claims on assets, such as loans, that are expected to generate future cash flows. This means that the money is tied up in loans or other investments and may not be immediately available as cash in the bank.

6. When buying loans in the secondary market, the willingness to pay more or less for a given loan depends on various factors:

1. If the borrower has been late on a number of loan payments, the perceived risk of default increases, and therefore the buyer may be willing to pay less for the loan.
2. If interest rates in the economy have risen since the bank made the loan, the buyer may be willing to pay more for the loan because it offers a higher interest rate compared to current market rates.
3. If the borrower is a firm that has just declared a high level of profits, the buyer may be willing to pay more for the loan because it indicates the borrower's ability to repay the loan.
4. If interest rates in the economy have fallen since the bank made the loan, the buyer may be willing to pay less for the loan because it offers a lower interest rate compared to current market rates.