Economics (with Digital Assets, 2 Term (12 Months) Printed Access Card)
12th Edition
ISBN: 9781285738338
Author: Roger A. Arnold
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 1VQP
To determine
How the capital can be viewed as a buffer against insolvency.
Expert Solution & Answer
Explanation of Solution
The difference between the assets and liabilities of a bank is its capital or total net worth. If the total liabilities of a bank exceed its total assets, then it leads to the problem of bankruptcy. Suppose the assets value of a bank declines, then its positive net worth helps to overcome this problem. A higher net worth of a bank is associated with a bigger buffer against insolvency. In this way, the capital acts as a buffer against insolvency.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
How is physical capital related to financial capital?
Only need this answer:
Find the golden rule level of capital stock
Capital formation is said to be facilitated by financial intermediation. Describe the way in which this process takes place and illustrate it with an example.
Chapter 18 Solutions
Economics (with Digital Assets, 2 Term (12 Months) Printed Access Card)
Ch. 18.2 - Prob. 1STCh. 18.2 - Prob. 2STCh. 18.2 - Prob. 3STCh. 18.4 - Prob. 1STCh. 18.4 - Prob. 2STCh. 18.7 - Prob. 1STCh. 18.7 - Prob. 2STCh. 18.7 - Prob. 3STCh. 18 - Prob. 1VQPCh. 18 - Prob. 2VQP
Ch. 18 - Prob. 3VQPCh. 18 - Prob. 4VQPCh. 18 - Prob. 5VQPCh. 18 - Prob. 1QPCh. 18 - Prob. 2QPCh. 18 - Prob. 3QPCh. 18 - Prob. 4QPCh. 18 - Prob. 5QPCh. 18 - Prob. 6QPCh. 18 - Prob. 7QPCh. 18 - Prob. 8QPCh. 18 - Prob. 9QPCh. 18 - Prob. 10QPCh. 18 - Prob. 11QPCh. 18 - Prob. 12QPCh. 18 - Prob. 13QPCh. 18 - Prob. 14QPCh. 18 - Prob. 15QPCh. 18 - Prob. 16QPCh. 18 - Prob. 17QPCh. 18 - Prob. 1WNGCh. 18 - Prob. 2WNGCh. 18 - Prob. 3WNGCh. 18 - Prob. 4WNGCh. 18 - Prob. 5WNG
Knowledge Booster
Similar questions
- In which form of business ownership is the principal-agent problem likely to be the greatest problem? Explain whyarrow_forwardWhat effect might a fall in stock prices have on businessinvestment?arrow_forwardExplain how accounting is used to track and monitor economic events that impact capital marketsarrow_forward
- Why is capital adequacy more of a problem for commercial banks than for most other businesses?arrow_forwardAre capital flow management and macroprudential measures the same thing?arrow_forwardEconomists assert that financial markets serve the function of efficiently allocating capital. What is meant by the function? Explain and include an example.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, IncMicroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningEconomics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
- Microeconomics: Principles & PolicyEconomicsISBN:9781337794992Author:William J. Baumol, Alan S. Blinder, John L. SolowPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning