Banking

Question 1

Commercial banks

Answer 1

A bank that accepts deposits from and lends money to customers,usually for personal and business loans

Functions

Accepting deposits
Lending to economic agents
Providing an efficient mean of payment

Question 2

Investment banks

Answer 2

A bank that doesn’t accept customer deposits and normally provides financial services to other businesses such as arranging share or debenture isssues

Question 3

Objectives of commercial banks

Answer 3

Liquidity
Need to ensure they have sufficient notes and coins to meet the need of customers withdrawing cash

If it doesn’t have enough it will have to borrow from financial markers and pay interest

Profitability
Want to make profit for its shareholders
By lending out money to borrowers and charging interest

Security
Banks take risks when lending money the risk that the borrower will fail to repay

Normally the interest on the riskier types of loans is higher to compensate for higher risk

Therefore there are better profits to be made off riskier lending