Final answer:
Activities that don't involve cash transactions aren't reported in the cash flow statement but are disclosed in financial statements. Bank balance sheets show deposits as assets, not all of which are present due to fractional-reserve banking. Secondary market loan values vary based on borrower reliability and economic interest rates.
Step-by-step explanation:
Activities that relate to operating, investing, or financing activities may not be reported in their respective sections of the statement of cash flows if they do not involve actual cash transactions. For example, when a company exchanges non-cash assets for other non-cash assets, or when they issue stock in exchange for assets, these transactions won't show up in the cash flow statement as they do not involve cash. However, these activities are reported in the financial statements within the notes or as non-cash investing and financing activities.
The balance sheet of a bank lists money under assets that may not be physically present in the bank because the bank uses the deposits to create loans and investments. Bank's actual reserves are often a fraction of the total deposits listed as liabilities. This is known as fractional-reserve banking.
In the secondary market, pricing loans can vary based on several factors such as borrower's reliability and broader economic interest rates. For instance:
- a loan would be less valuable if the borrower has been late on loan payments as it increases the risk of default
- a loan's value can decrease if interest rates in the economy rise after the loan was given as newer loans yield higher returns
- a loan could be worth more if the borrower is a firm that is profitable, indicating lower risk of default
- if interest rates have fallen since the loan was made, existing loans become more valuable as they are locked in at higher rates