Banking 1 - Money, Banking & Central Banks Flashcards
1
Q
what is fractional reserve banking?
A
banks don’t keep 100% of the deposits they receive
they loan out a vast percentage of the deposits and store a small percentage as reserves
2
Q
cash reserves = ?
A
cash held by the bank
3
Q
how does the balance sheet of a bank look?
A
deposits are liabilities
owners have equity
loans given out are assets
cash reserves are assets
interest received are assets
4
Q
how does interest work in a bank?
A
we earn interest on the loans we give out
we give less interest to depositors
5
Q
how do banks make profits?
A
they charge higher interest to borrowers than they pay to depositors
