14. Commercial and Central Banks Flashcards
What is a wholesale bank and what are some other names for it.
Banks that specialise in providing financial services to large organisations, are also referred to as merchant, secondary or investment banks.
What is fractional reserve banking?
When banks keep a fraction of customers deposits as cash reserves and lend out the remainder as they know it is unlikely all customers will withdraw money at the same time
What is the formula for credit creation
Increase in deposit = initial cash deposits x credit multiplier
credit multiplier = .1/reserve ratio
What three aims must a commercial bank keep in balance?
Profitability, liquidity and security
What are the aims of a central bank?
To regulate the banking sector, to ensure financial stability, and to control interest rates.
