If the market value of what it has lent is less than the market value of what it has borrowed, a financial institution's net worth is ________ and it is ________.
A) negative; illiquid and insolvent
B) negative; insolvent but not necessarily illiquid
C) positive; illiquid and insolvent
D) positive; insolvent but not necessarily illiquid
E) negative; illiquid but not necessarily insolvent

Question

Quizplus · Accepted Answer

If the market value of what a financial institution has lent is less than the market value of what it has borrowed, its assets are less than its liabilities, leading to negative net worth. This condition defines insolvency. However, liquidity, which is the ability to meet short-term obligations, is not directly determined by net worth, so the institution might still be liquid.

If the Market Value of What It Has Lent Is