Question

Examine the balance sheet of commercial banks in Table 1.3. What is the ratio of real assets to total assets? What is that ratio for nonfinancial firms (Table 1.4)? Why should this difference be expected?

Short answer

The ratio of real to total assets = 0.01291

The ratio of non-financial firms =0.4845

Step-by-step solution

Definition

Land, buildings usually owned by or leased to companies for carrying out operations are called real assets. The sum of such assets by an individual or a company is known as total asset.

Calculation of the ratio of real to total assets

For commercial banks

From the table 1.3:

Total tangible (real) assets of the commercial banks = $157 billion and

Total assets = $12157.3 billion.

So the ratio of real assets to total assets= Real Assets/ Total Assets

= $157/$12,157.3

= 0.01291

Thus, the ratio is 0.01291.

Calculation of the ratio of non-financial firms

For non-financial firms:

From the table 1.4:

Total tangible (real) assets of the commercial banks = $13,661 billion and

Total assets = $28,196 billion.

So the ratio of real assets to total assets of non-financial firms = Real Assets/ Total Assets

= $13,661/$28196

=0.4845

Reason for difference

The apparent reason for this difference can be found out in the nature of business of the financial firms who offer loans that are financial assets.