Commercial and investment banks

Question 1

commercial banking

Answer 1

deposit-taking and lending. they provide services to corporate and individual customers. some commercial banks have investment banking arms

Question 2

how do commercial banks make profit

Answer 2

take small, short-term,relatively liquid deposits from retail savers and transforming these into larger, longer maturity loans eg. business loans and mortgagees

Question 3

investment bank

Answer 3

provides a wide range of specialised services for companies and large investors

Question 4

liquidity risk

Answer 4

banks tend to attract short term deposits, as a result, a commercial bank may not be able to repay all of those deposits if savers decide to withdraw their funds. to reduce liquidity risk, banks will try to attract longer term deposits and hold some liquid assets as capital reserves

Question 5

credit risk

Answer 5

the risk that the commercial bank of lending to borrowers who turn out to be unable to repay their loans