3) For each of the following state whether it is True or False and provide a...

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3) For each of the following state whether it is True or False and provide a...

3) For each of the following state whether it is True or False and provide a brief explanation (1 or 2 sentences) as to why it is true or false.

a) When we say a bank is engaging in asset transformation we mean in part that the bank is raising funds by selling low risk assets to depositors

. b) Financial intermediaries like banks make it more difficult for their customers to time big purchases like a new car.

c) When an individual buys a bond, their net worth instantly increases.

business economics

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Answer 1

Answer #1

(a) False

Asset transformation means that the bank raises funds, by converting small-denomination and lower-risk deposits into loans, offering the loans to borrowers who has to repay the loan as per repayment schedule mentioned in loan agreement.

(b) False

Financial intermediaries make it easier for customers to purchase cars, house etc by offering loans.

(c) False

After purchase of a bond, net worth will increase only if the bond interest rate is higher than market interest rate, so the bond sells at a premium.

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Answer 2

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