Which of the following statements is true?
A)Large increases in the value of the OBS assets can render an FI economically insolvent.
B)Large increases in the value of the OBS liabilities will not render an FI economically insolvent as the liabilities are only contingent.
C)Large increases in the value of the OBS liabilities will not render an FI economically insolvent as the net worth of the institution will not be affected.
D)Large increases in the value of the OBS liabilities can render an FI economically insolvent.

Question

Quizplus · Accepted Answer

Large increases in the value of the OBS liabilities can render an FI economically insolvent. OBS liabilities are off-balance-sheet items that can turn into actual liabilities if the conditions specified in the contracts are met. A large increase in the value of these liabilities could result in a severe reduction in the institution's net worth, leading to economic insolvency.

Which of the Following Statements Is True