Choose the statement that is incorrect.
A)A financial institution can be solvent but illiquid.
B)A firm is illiquid if it has made long-term loans with borrowed funds and is faced with a sudden demand to repay more of what is has borrowed than its available cash.
C)Insolvency and illiquidity were at the core of a global financial meltdown in 2007-2008.
D)A financial institution's net worth is the market value of what it has lent minus the market value of what it has borrowed.
E)If a financial institution's net worth is negative, the institution is solvent.

Question

Quizplus · Accepted Answer

If a financial institution's net worth is negative, it means that the market value of what it has borrowed is greater than the market value of what it has lent, indicating that it has more liabilities than assets. Therefore, the institution is insolvent and not solvent.

Choose the Statement That Is Incorrect