Question

In comparison to small banks, larger banks typically have

A.) more off balance-sheet activities

B.) more equity capital

C.) more core deposits

D.) larger net interest margins

Answer 1

Correct option is A.) more off balance-sheet activities

Off balance sheet items are those items which do not appear on face of the balance sheet.

Large banks have high presence in global market and their balance sheet is composed of dynamic asset and liabilities.

Example of off balance sheet item:

These banks are more concerned for their interest rate risk on balance sheet. They buy Interest Rate Swap (IRS) agreements to hedge the risk of interest rate risk (fluctuations). These contracts are based on notional principal hence they don’t involve any transaction which qualifies for perfect asset or liability as on balance sheet item.