27.3

Which of the following explains why deposits are a liability for banks?

Banks must be able to give the money back to customers in the form of withdraw.

Which description best fits the definition of balance sheet?

A balance sheet is an accounting tool that lists assets and liabilities.

Which is the best definition of liability?

A liability is an amount of debt owed by a firm or an individual.

Which of the following is the best definition of an asset?

An asset is something of value that is owned and can be used productively.

______ refers to lending a variety of loans, such as car loans, home loans, and business loans to a variety of customers.

Diversification

True or false? Deposits are assets to banks because the money is given to them and added to the bank's overall net worth.

False

True or false? Loans are considered a liability to banks because they are not guaranteed to get the money back.

False

Which of the following explains the benefits of diversification for banks?

They can protect themselves against a high rate of loan defaults. They can protect themselves against the risk of asset-liability time mismatch.

What term is best defined as an item of value owned by a firm or an individual?

asset

What term is best defined as the excess of the asset value over and above the amount of the liability?

net worth