3.1 B - Banking Flashcards
What is the central bank
The main monetary authority of a country that oversees and manages the nation’s money supply and banking system
Functions of the central bank
Sole issuer of bank notes and currency
Manages govt. payments
Manages national debt
Supervises the banking system
“lender of the last resort” to the banking system
Manges nation’s gold and forex
Operates govt.’s monetary policy.
What is interest
the cost of borrowing money.
Some financial services banks provide and take a fee on performing
Withdrawing money from ATM
Forex
buying/selling shares of a public company
Insurance (life, property, travel)
Telephone and internet banking services
What is a commercial bank
Retail banks that provide various financials services to customers
What is a bank
A financial institution which brings together customers who want to save vs. borrow.
Two types of commercial banks
Private sector
Public sector
What is a private sector commercial bank
A bank that is owned and operated by the private sector under guidelines from the govt.
What is a public sector commercial bank
A bank that is operated by the govt.
Another name for commercial bank and why its called that
Clearing bank - They transfer funds between each other on behalf of their customers through a process known as clearing.
Two types of functions for a commercial bank
Primary
Secondary
What are the primary functions of a commercial bank
Accept deposits
Make loans (advances)
Overdrafts
Credit creation
What is an overdraft
A kind of short term borrowing when that you take when you withdraw more money than you have.
Overdraft vs loans
Overdrafts -
Short term
Have a limit
Only given to businesses or wealthy individuals
Don’t need collateral
Loans -
Long term
What is the credit creation process
Banks increase the circulation of money in an economy by making money more available to borrowers.
What does credit creation process enable banks to do
Generate additional purchasing power from their cash deposits.
What are the secondary functions of the commercial bank
Collecting/clearing cheques on behalf of customers
Providing safety deposits
Providing the facility to transfer money to other overseas bank accounts
Pay bills on your behalf
Online banking
Tax advisory
ForEx
Trading shares.
Types of banks
Commercial
Credit unions
Mutual societies
Investment banks
Islamic banks
What is a credit union
What do they do
Not-for-profit organization, owned by and for its members.
Provides low cost loans to members with low income who can’t borrow from other banks.
What are mutual societies
Owned and run on behalf of their customers
Specialize in mortgages.
What are investment banks
Help large businesses raise finance to fund operations and expansion.
Advice to companies for mergers, acquisitions and takeovers
Islamic banks
How do they make money
What do people who deposit money get
Like commercial banks except islamic banks don’t charge/pay an interest.
Instead they take fees for banking services.
People who deposit money will get a share of the profits.
Types of bank accounts
Savings
current
recurring
Types of loans
Personal loans
Housing loans (mortgage)
Mediums of money
Cash and coins
Debit card
Credit card
What is a savings account
An account for your saving where no fixed amount of money has to be deposited.
Interest is added on the money in this account
What is a deposit account
(Broader term for savings and current)
A deposit account is a type of bank account which allows money to be deposited or withdrawn by the account holder.
What is a current account
An account used by the customer for everyday transactions. No fixed a amount has to be deposited every month
What is a recurring account
A bank account where a specific amount of money has to be deposited every month.
What is a personal loan
characteristics
Individual loan taken by an individual for personal uses.
6 months - 10 years
high interest on the basis on the individual’s salary
What is a housing laon
Only for houses
Long term
Some collateral has to be put up with the loan as well
What is a debit card
Medium of payment where money is debited from your account.
What is a credit card
Medium of payment, where u have a credit limit and you make purchases on the credit limit.
Short term loan
If you can’t pay the credit card debt then you have to pay interest + the original debt.
