2.1 // Financial Institutions

Question 1

What is a financial institution?

Answer 1

An establishment that focuses on dealing with financial transactions.

Question 2

What are the two categories financial institutions are separated into?

Answer 2

Depository and non-depository.

Question 3

What is the function of a depository institution?

Answer 3

To accept and manage deposits; to provide personal and commercial loans.

Question 4

What is an example of a depository institution?

Answer 4

Commercial banks; savings and loan associations; credit unions

Question 5

What is the function of a non-depository institution?

Answer 5

They don’t accept deposits, but get money with investor contributions or by selling insurance policies; they provide investment and brokerage services, and loans.

Question 6

What is an example of a non-depository institution?

Answer 6

Insurance companies; investment companies; financial conglomerates; brokerage firms; pension funds

Question 7

What is a bank?

Answer 7

A financial intermediary that accepts deposits from customers and businesses, then uses the deposits to make loans.

Question 8

What is a financial service provided by a bank?

Answer 8

Checking accounts; savings accounts; CDs; credit cars; loans; retirement accounts

Question 9

What are the three main types of banks?

Answer 9

Commercial banks, thrift institutions, and credit unions.

Question 10

What services are offered by commercial banks?

Answer 10

Checking and savings accounts, CDs, ATM cards, deposit cards, loans, mortgages, credit cards, advisory services, and pension and retirement planning.

Question 11

Who are commercial banks regulated by?

Answer 11

The federal reserve system, the Federal Deposit Insurance Corporation, and state and federal banking agencies.

Question 12

What is the primary source of funds for commercial banks?

Answer 12

Their primary source of funds is customer deposits; demand deposits(checking accounts), time deposits(certificates), or savings deposits.

Question 13

What are thrift institutions?

Answer 13

Financial institutions that obtain the majority of their funds from the savings of the public.

Question 14

What are the primary types of thrift institutions?

Answer 14

Savings and loan associations, credit unions, and mutual banks.

Question 15

Who are thrift institutions insured and regulated by?

Answer 15

Regulated by the government; insured by the FDIC

Question 16

Credit unions are (?) institutions.

Answer 16

non-profit

Question 17

What is the result of credit unions being non-profit?

Answer 17

They are not taxed, so they have lower loan rates, higher savings rates, and low cost/free services/

Question 18

In a credit union, who makes the decisions?

Answer 18

The board of directors.

Question 19

By making deposits to a credit union, you are ___.

Answer 19

Buying membership.

Question 20

What is the requirement for membership in a credit union?

Answer 20

All members share a common bond; occupation, company, residential area, etc.

Question 21

How do credit unions get their money?

Answer 21

Members pool their own savings.

Question 22

Who are credit unions regulated and insured by?

Answer 22

Regulated by government; insured by the National Credit Union Association(NCUA).

Question 23

What is a lending institution?

Answer 23

A financial organization that provides loans. May or may not be a depository institution.

Question 24

What does a bank do when it receives your money?

Answer 24

Part of the money is reserved in your account, most of it is put into making loans.

Question 25

What two things does the rate of interest depend on?

Answer 25

1. How many people want to borrow money

2. How much money is available

Question 26

What are some reasons why banks fail?

Answer 26

They expand too quickly; they put too much money into a loan; fraud; changing economic conditions - loans are hard to pay back