Question

Suppose Universal Bank holds $100$million in assets, which are composed of the following:

Required reserves:$10$million

Excess reserves: $5$million

Mortgage loans: $20$million

Corporate bonds: $15$million

Stocks: $25$million

Commodities: $25$million

Do you think it is a good idea for Universal Bank to hold stocks, corporate bonds, and commodities as assets? Why or why not?

Short answer

No, these kinds of assets are fairly high risk, and there is a danger of insolvency.

Step-by-step solution

Concept Introduction

A universal bank is a bank that joins the three fundamental administrations of banking under one rooftop. The three administrations are discount banking, retail banking, and speculation banking. As such, it is a retail bank, a discount bank, and furthermore a speculation bank.

Explanation

Universal banking incorporates the services of a commercial bank and an investment bank, delivering all services from within one entity. The services can contain deposit accounts, a variety of investment services, and may even provide insurance services. Deposit accounts within a universal bank may contain savings and checking.

Final Answer

Corporate bonds, Stocks, Commodities are relatively high risk, and there is a danger of insolvency .