Question

8. Of all the different types of capital financial institutions use today, which of the following represents the highest relative percentage:

1. Surplus.
2. Common stock.
3. Undivided profits.
4. Equity reserves.

9.         The credit risk weight used to calculate risk-weighted assets for short-term unused commitments to individuals, an off-balance sheet item is:

1. 0 percent.
2. 20 percent.
3. 50 percent.
4. 100 percent.

10.       For financial institutions, under Basel III in order for the institution to be considered adequately capitalized, Tier 1 ratio must be:

1. No more than 6 percent.
2. No more than 4 percent.
3. At least 6 percent.
4. Minimum of 8 percent.

Answer 1

8. Equity capital is highly used by the Financial firms these days in order to fund their various kinds of projects, and it can have no negative impact as well as it has no fixed cost attached to it so equity capital is highly preferred by financial firms issue common stock in order to have equity capital.

Surplus, equity reserves and undivided profits are few of the types of capital which are available to the cash rich firms only it cannot be availed by other firms who are short on cash so they are not the highly used method.

Correct answer it option ( B) common stock