European banks face $400 billion in potential losses from the euro-zone debt cri

Question

European banks face $400 billion in potential losses from the euro-zone debt crisis, the International Monetary Fund said as it urged banks to raise capital. The "capital" referred to in the news clip is. A. physical capital B. human capital C. stocks and bonds D. institutions' own funds E. all of the above The requirement to raise more capital can make financial institutions safer because by using more of its own funds and less borrowed funds, a financial institution. A. increases its gross investment B. decreases its risk of insolvency C. can charge a higher price for its bonds D. increases the value of its stock E. becomes larger

Explanation / Answer

option D is correct, here capital means institutional owned funds- like bankers, non banking firms and so on.

the banker can reduce risk by this, option B is correct. doing business by borrowed funds leads to high financial leverage ana risk.

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