Question

Use the information given in Great Lakes National Bank's balance sheet to answer the following questions. Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and the account. This would also bring the leverage ratio from its initial value of to a new value of Which of the following do bankers consider when deciding how to allocate their assets? Check all that apply. The return on each asset The total value of liabilities The size of the monetary base

Answer 1

Bankers consider several factors when deciding how to allocate their assets. These factors include:

1. The return on each asset: Bankers assess the potential profitability of each asset before deciding how to allocate their resources. They want to invest in assets that generate a high return on investment, such as loans with high interest rates or investments with significant growth potential.

2. The total value of liabilities: Bankers also consider the total value of liabilities, which includes obligations such as deposits and borrowings. They need to ensure that they have sufficient assets to cover their liabilities and maintain a healthy financial position.

3. The size of the monetary base: The size of the monetary base, which refers to the total amount of currency in circulation and bank reserves, can also influence bankers' decisions. Changes in the monetary base can affect interest rates and liquidity in the economy, so bankers need to take these factors into account when allocating their assets.

By considering these factors, bankers can make informed decisions about how to allocate their assets in a way that maximizes profitability while maintaining financial stability.