20-9 Market value of equity is better than book value of equity at reflecting changes in the credit risk and interest rate risk of an FI.

Question

Quizplus · Accepted Answer

Market value of equity reflects the current market perception and expectations of the credit risk and interest rate risk faced by an FI. On the other hand, book value of equity reflects the historical costs of assets and liabilities and may not fully capture the current risks faced by the FI. Therefore, market value of equity is a better indicator of changes in credit risk and interest rate risk.

20-9 Market Value of Equity Is Better Than Book Value