Banking Flashcards
1
Q
Origins of Money- chain
A
Central bank- base money- deposited in bank- 90% lent- deposited in another bank- multiplies
2
Q
Surplus agent
A
Has extra fund and saves e.g for investments
3
Q
Deficit agents
A
Require funds to borrow- buy a house
4
Q
Financial intermediation
A
Transferring funds from surplus to deficit agents by banks/ pension funds
Pension funds- surplus= young persons paying into pension when working- deficit=pensioners withdrawing funds
5
Q
Maturity transformations
A
Banks manage the risk of not having enough funds to pay back surplus agents with inflows from deficit agents on loans
6
Q
Cost reduction
A
Banks reduce search costs for surplus and deficit agents using specialist knowledge and economies of scale
