General Knowledge · General Awareness
In calculating the Return on Assets (ROA) for a bank branch, how does holding a large amount of uninvested idle cash in the branch vault impact its ROA?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It increases the interest spread by allowing the branch to charge a convenience fee for cash withdrawals.
- 2It has a neutral effect because the Head Office provides dummy interest credit for vault cash.
- 3It decreases the ROA because cash in hand is a non-earning asset that increases total assets (denominator) without contributing to net income (numerator).✓
- 4It increases the ROA because cash is the most liquid asset.
Correct answer
It decreases the ROA because cash in hand is a non-earning asset that increases total assets (denominator) without contributing to net income (numerator).
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