Banking

Question 1

commercial banks

Answer 1

usually privately owned. They have the objective of making profit by providing commercial services to individuals, firms and governments

Question 2

Roles (6) of commercial banks

Answer 2

-Keeping money safe
-Paying interest for (saving) deposits
-Charging interest on loans
-Enabling payments between people, firms and governments
-Charging fees for provision of other financial services (e.g. insurance, private banking, wealth management, credit card, money changer/foreign currency)
-Making investements in (new) firms

Question 3

types of lending by commercial banks (3)

Answer 3

-Overdraft: Taking out more from your bank account than what you have, for short term purposes e.g. to pay bills
-Loans: Borrowing a fixed amount of money to buy expensive things, e.g. a car
-Mortgage: Borrowing a fixed amount of money to buy a house. If cannot be repaid, bank will take house and sell it

Question 4

interest rate for customers and borrowers

Answer 4

Customers: reward for putting their money in the bank
Borrowers: Cost of borrowing money

Question 5

central bank

Answer 5

Bank organisation entrusted by the government to supervise all commercial banks and carry out monetary policies

Question 6

4 biggest central banks worldwide

Answer 6

-European Central Bank (located in Frankfurt)
-Bank of England
-The bank of Japan
-Federal reserve of USA

Question 7

roles (6) of central bank

Answer 7

-Issue money –> coins (issued locally) and notes (only in Frankfurt for Europe)
-Supervising banking sector in the country
-Supervising monetary policies of the government
-Government’s and commercial banks’s banker
-Lender of last resort
-Coordinating with other central banks and international financial institues

Question 8

Why are central banks the only ones allowed to issue money?

Answer 8

Otherwise there would be too much money in circulation, causing money to lose its value –> hyperinflation