2.6

What are the three main types of banks?

the central bank, commercial banks, and investment banks.

What are the two main profit-generating activities of commercial banks?

-charging interest to borrowers and from the interest they charge on loans; interest in the price of money.

Which type of bank services individual and business daily transactions?

A checking account is a type of bank service where individuals and businesses can make daily transactions. For example, a debit card is basically a checking account.

How does bank lending lead to economic growth and a healthy economy?

Bank lending leads to economic growth and a healthy economy because banks are not only able to loan money to consumers, but they also can loan to firms where they can use these funds to expand their businesses. Even student loans can help in the growth and development of an economy because they can be used to make the people more productive and efficient employees. On the other hand, those who make deposits to the bank also contribute to the economies growth and health because the bank can use the deposits and loan them out where they can earn larger profits as interests.

Explain how banks reallocate money.

Banks reallocate money by providing an avenue for market economies in order to work efficiently as they allocate money to its best use. They also take deposits from savers and loan that money to firms that want to build or grow their businesses.

___________ are basically loans to a firm.

Bonds

What do companies do with the money they receive from the sale of stocks and bonds that they issue?

Companies use the funds they receive from the sale of stocks and bonds that they issue to expand their businesses or invest in research and development to make new and better products.

What do investments provide?

Investment banks provide a means for the sale of stocks and bonds.

Explain one example of how the banking system or the financial market failed and caused economic collapse.

One example of how the banking system failed and caused an economic collapse can be The Great Depression. The Great Depression occured in 2008 when people were withdrawing large amounts of money from banks, whereas they had to restrict those who were taking loans causing a reduction in deposits and shrinking the money stock. As a result of this, the stock market fell and many people lost their money and investments they had made.

____________ represent ownership of a corporation.

Stocks

What is the financial market?

The financial market is where buyers and sellers come together to exchange ownership of investments, such as stocks, bonds, currencies, and so on.