Ch.1 Study Guide The Business of Banking

Which of the following statements about banks is NOT true? a) Banks distribute the medium of exchange. b) All banks are organized as corporations. c) Banks may be chartered by either federal or state governments. d) Banks are essential to maintaining the economy.

Banks may be chartered by either federal or state governments.

Why aren't bank deposits considered a form of bank income?

Because its the peoples money that they deposit. The bank has to return the money when the depositors ask for it.

About 60% of the deposit and loan business in the U.S is done by... a) Retail banks b) Central banks c) Commercial banks d) credit unions

Commercial banks

What are the three primary differences between a credit union and a commercial bank?

Credit union is owned by depositors, they are nonprofitable, and any money beyond costs is returned to the members in the form of dividends on savings, reduced faster services, lower rates for loans. Commercial banks are owned by stockholders, they expect profit from their investments, they also provide 60% of deposits and loans in the U.S

One big difference between a commercial bank and mutual savings bank is that... a) A commercial bank is a non-depository intermediary b) A mutual savings bank is a not-for-profit organization c) A commercial bank is owned by depositors, not stockholders. d) A mutual savings bank is owned by depositors, not stockholders.

A mutual savings bank is owned by depositors, not stockholders.

A(n) __________ Intermediary is a financial institution that obtains funds from the public and uses them to finance its business.

Depository

Which of the following is considered a liability for a bank? a) Loans b) Investments c) Deposits d) None of the above; banks are prohibited by law from carrying liabilities.

Deposits

A bank is a not-for-profit organization. T or F

False

Commercial banks offer their services only to businesses. T or F

False

Generally speaking, banks offer customers fewer services today than they did 20 years ago. T or F

False

It is illegal for banks to charge higher interest rates for loans than they pay depositors. T or F

False

Return on equity is the ratio of net income to total assets. T or F

False

Are a banks Liabilities more or less liquid than its assets? Explain

Less Liquid, because banks are sometimes either tied up in long term loans or they cant get the loans quick enough. if unpaid depositors lose their money when the bank fails than it makes it less liquid.

Total assets minus total liabilities equals... a) Return on equity b) Return on assets c) Equity d) Loss

Return on assets.

Banks move money between.... a) Other banks b) Banks and individual customers. c) Governments d) All of the above

All of the above.

The difference between what a bank pays in interest and what it receives in interest is called... a) Profit b) Spread c) Gross interest income d) Loss

Spread

What is meant by the term Medium of exchange?

System for measuring value of goods and services.

In the united states, banks and ______ work together to form the banking system and to ensure the money supply is adequate, appropriate, and trustworthy. a) Consumers b) Industry c) Savings and loans d) The government

The government

Briefly explain why retail banks developed in the U.S.

To help individuals not served by commercial banks save money.

A credit union is a not-for-profit organization. T or F

True

A loan company is not a financial intermediary because it does not receive deposits. T or F

True

All Federally Charted Banks Must be corporations. T or F

True

Credit cards issued by banks is a form of lending. Tor F

True

Interest on home-equity Loans is tax-deductible for consumers. T or F

True

Record keeping is an important part of securing your money in a bank. T or F

True

A commercial bank that specializes only in business banking is sometimes called a(n) ___________ bank.

wholesale

A(n) ___________bank serves as the government's banker.

central

A bank evaluates the ________ of all customers who apply for loans.

credit

People who put money into banks are called ______

depositors

Revenue minus ________ Equals profit.

expenses

Profit, or net __________, is what is left of revenue after expenses are deducted.

income

What is currency exchange?

Currency exchange is a private company that cashes checks, sell money orders, or perform other exchange services.

Which of the following is a non-depository intermediary? a) Commercial bank b) Insurance company c) Savings and loan association d) credit union

Insurance Company

A bank is a financial _____________ for the safeguarding, transferring, exchanging, or lending of money.

Intermediary

Which of the following is NOT a source of income for a bank? a) The interest earned by depositors b) Investments c) Loan income d) Fees for services

Investments

Describe the effects of mergers on the banking industry?

Mergers increase the size of banks but decrease in numbers. which also gains more money over the years causing them to lose over 2,000 commercial banks since the 80's.

One result of competition among banks is that... a) More services are available to consumers. b) More banks exists now than a decade ago. c) The trend toward mergers in the banking industry has slowed. d) All of the above

More services are available to consumers.

A(n) __________ Is a cash obligation.

liability

A(n) ________ asset is anything that can readily be exchanged.

liquid

A(n) ________ occurs when one or more a another bank or banks join or acquire another bank or banks.

merger