The Role of Banks in Our Economy

What is the primary function of a bank?

• Issuing credit cards

• Accepting deposits and making loans

• Providing financial counseling

• Selling insurance products

Tags

FIN-BII 2.2

What are the primary reserves that banks keep to meet their reserve requirement?

• Deposits from customers

• Stocks and bonds

• Cash, deposits due from other banks, and reserves required by the Federal Reserve System

• Government bonds and securities

Tags

FIN-BII 2.2

What is the phenomenon called when the original deposit creates a multiplier effect in the banking system?

• Multiplier effect

• Reserve effect

• Deposit expansion

• Bank lending cycle

Tags

FIN-BII 2.2

How do banks earn money from the interest rate they receive on the loans they make?

• They receive dividends from their shareholders

• They earn fees for customer services

• They earn interest on the securities they hold

• They make money from the spread

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FIN-BII 2.2

What is the main role of the Federal Reserve in controlling the money supply?

• Facilitating the flow of money in local communities

• Regulating banks to ensure they meet public needs

• Issuing bank charters for public need and convenience

• Contracting or expanding the money supply by raising or lowering banks' reserve requirements

Tags

FIN-BII 2.2

What is the main buffer against losses for a bank?

• Government bonds

• Customer deposits

• Interest income

• Equity capital

Tags

FIN-BII 2.2

What is the action of taking deposits and making loans called?

• Financial intermediation

• Deposit expansion

• Bank lending cycle

• Reserve effect

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FIN-BII 2.2

What is the main source of consumer loans for individuals and businesses?

• Banks

• Investment banks

• Insurance companies

• Credit unions

Tags

FIN-BII 2.2

What is the purpose of secondary reserves that banks keep?

• To keep as excess reserves

• To meet short-term cash needs

• To make loans to borrowers

• To pay out to depositors

Tags

FIN-BII 2.2

What is the main function of the excess reserves that banks have?

• Purchase government bonds

• Meet the reserve requirement

• Pay out to depositors

• Create money through lending

Tags

FIN-BII 2.2