Which of the following is characteristic of a bank with a high leverage ratio?
A) The bank is taking on more risk.
B) The bank is more likely to go bankrupt.
C) The bank expects higher profits in the future.
D) All of the above.
E) None of the above.

Question

Quizplus · Accepted Answer

A high leverage ratio indicates that a bank is using a significant amount of debt relative to its equity. This condition inherently involves more risk, as the bank relies more on borrowed funds. The increased risk also raises the potential for higher profits, as leveraging can amplify returns. However, it also makes the bank more susceptible to bankruptcy if its investments do not perform well, since it must meet debt obligations regardless of its financial performance.

Which of the Following Is Characteristic of a Bank with a High