1.Discuss why investors are willing to buy shares in banks when: (i) the ROA of banks is...

60.1K

Verified Solution

Question

Finance

1.Discuss why investors are willing to buy shares in bankswhen:
(i) the ROA of banks is typically quite low, and
(ii) banks are subject to many restrictions and are closelymonitored by the regulators.
2.What is the capital adequacy ratio for a bank? Discuss why itis a good way to assess the risk of a bank

Answer & Explanation Solved by verified expert

4.3 Ratings (581 Votes)

1 ROA i ROA for banking industry in general tends to be lower than other industries This is because banks are highly leveraged institutions with huge amount of debtborrowings on their balance sheets ROA net income Assets Assets Liabilities Equity The asset base tends to be large owing to huge liabilities deposits bonds issued and other borrowings The ROA tends to be low for banks But even a 1 ROA translates into huge profits due to the large denominator This is why investors favor banks in spite of See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

1.Discuss why investors are willing to buy shares in bankswhen:(i) the ROA of banks is typically quite low, and(ii) banks are subject to many restrictions and are closelymonitored by the regulators.2.What is the capital adequacy ratio for a bank? Discuss why itis a good way to assess the risk of a bank