A depository institution differs from a non-financial firm in which of the following ways?

Question

Quizplus · Accepted Answer

A depository institution has primarily financial assets such as loans, securities, and cash reserves. In contrast, a non-financial firm has real assets such as land, buildings, and equipment.

Depository institutions have much higher financial leverage, as they rely more heavily on borrowed funds, especially deposits, to fund their operations.

Depository institutions use deposits to fund loans, whereas a non-financial firm may rely on external financing, such as issuing bonds.

Depository institutions generally have lower operating leverage compared to non-financial firms since their main source of revenue is the difference between the interest paid on deposits and the interest earned on loans. Non-financial firms usually rely on selling goods and services for revenue.

A Depository Institution Differs from a Non-Financial Firm in Which