The following are ideal scenarios for economic capital, except one:a.High Liquidityb.High Riskc.High return
Question
The following are ideal scenarios for economic capital, except one:a.High Liquidityb.High Riskc.High return
Solution
The ideal scenarios for economic capital are high liquidity and high return. High liquidity means that assets can be quickly converted into cash without any price discount. High return means that the investment or business activity is generating a significant amount of profit relative to the amount of capital invested.
However, high risk is not an ideal scenario for economic capital. High risk means there is a greater chance of loss. This could potentially lead to financial instability and could jeopardize the safety of the economic capital. Therefore, the answer is b. High Risk.
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