Banking Flashcards

0
Q

Depository institutions provide:

A
  1. Create liquidity
  2. Minimize cost of obtaining funds
  3. Minimize cost of monitoring borrowing
  4. Pool risk
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1
Q

Financial institutions

A
  1. Commercial banks
  2. Savings and loan associations
  3. Savings banks and credit unions
  4. Money market mutual funds
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2
Q

Thrift institutions

A
  1. Savings and loan associations
  2. Savings banks
  3. Credit unions
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3
Q

Deposit insurance

A

Most financial institutions insured by federal deposit insurance corporation (fidc)

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4
Q

Balance sheets

A

Banks use to list their assets, liabilities, and net worth

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5
Q

Assets

A

What banks own

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6
Q

Liabilities

A

What bank owes

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7
Q

Net worth

A

Difference between assets and liabilities

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8
Q

Liabilities + networth=

A

Assets

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9
Q

Required reserves=

A

Required reserve ration X total deposits

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10
Q

Excess reserves=

A

Total reserves- required reserves

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11
Q

Demand deposits

A

Claims depositors have against banks assets and checking accounts

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12
Q

Prime rate

A

Interest rate banks charge most creditworthy customers for short term loans of less than a year

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13
Q

Constraints of deposit creation

A
  1. Deposits- willingness of customers to continue accepting checks rather than money
  2. Willingness of consumers to borrow
  3. Willingness of banks to lend
  4. Federal regulations
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14
Q

Money creation process

A
  1. Banks have excess reserves
  2. Banks lend excess reserves
  3. Quantity of money increases
  4. New money is used to make payments
  5. Some of new money remains on deposit
  6. Some of new money is a currency drain
  7. Desired reserves increase b/c deposits increase
  8. Excess reserves decrease but remain positive
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15
Q

Federal funds rate

A

Interest rate banks charge each other on overnight loans of excess reserves, set by federal reserve