Retail & Commercial Banking and Borrowing (loans, mortgages and overdrafts)

Question 1

What are retail banks?

Answer 1

• Banks that specialise in taking deposits and providing loans to individuals (the public)

Question 2

What are corporate banks?

Answer 2

• Banks that specialise in taking deposits and providing loans to businesses.
• In parts of the world outside the US, these are often referred to as commercial banks.

Question 3

What are some of the features of retail banks?

Answer 3

• Individuals are retail customers
  -Banks that provide these customers with services are known as retail banks.
  -The purpose of the bank is to attract deposits from savers and lend to borrowers.

Question 4

What are features of commercial banks?

Answer 4

• This term is mainly used in the US.
• In the US, it encompasses all banks that engage in attracting deposit and giving out loans.
• In other countries “commercial” banks may refer solely to banks who provide such services to businesses only (not individuals)

Question 5

What is a bank loan?

Answer 5

• A bank loan is a form of debt where a borrower receives a certain amount from a lender, this case a bank.

Question 6

How do borrowers pay back a bank loan?

Answer 6

• The borrower agrees to pay a contracted rate of interest to the lender and also agrees a date on which the loan will be repaid.

Question 7

What are the normal conditions of bank loans?

Answer 7

• For a set period that is generally less than five years.
• At a set rate of interest
• With a defined repayment schedule

Question 8

What is an unsecured loan?

Answer 8

• A loan provided to a borrower where the lender takes no security

Question 9

What is a mortgage?

Answer 9

-A mortgage loan is a long-term used to finance the purchase of real estate
- Under the Mortgage Agreement, the borrower agrees to make a series of payments back to the lender.

Question 10

What the typical conditions of a mortgage>

Answer 10

• For a set period (usually 25-35 years)
• At a fixed or variable rate of interest
  -With a defined repayment schedule (eg monthly)
  -Secured on the property loan is used to buy
  -Cheapest form of borrowing

Question 11

What is a secured loan?

Answer 11

• Where the situation takes something of value (asset) as security for a loan.
• If the borrower fails to repay the debt, the lender is able to keep and sell the asset.

Question 12

What is an overdraft?

Answer 12

• Overdraft is a form of borrowing from a bank where the lending bank can demand repayment at any time.
  -The account holder can withdraw a moment from the account when they have a zero balance.