How much risk is optimal in a bank? 1) as much risk as is necessary to...
How much risk is optimal in a bank?
1) as much risk as is necessary to maximize profit 2) as little risk as can be taken 3) the amount of risk that results in maximized shareholder value 4) banks should never take risks
Homework Answers
Option 3
Banks cannot be allowed to go bankrupt. Most people have their life’s savings in the bank. Hence they cannot take risks which will maximize profits. Also taking more risk or little risk will result in loss of opportunity that would otherwise be available to the banks. Hence the optimum way for a bank is to take the risks in such a manner that the shareholder value is maximized.
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