Role of Banks? (CH14)

Question 1

What do Banks do?

Answer 1

• Take deposits from people who wish to save
• They lend to people who wish to borrow
• Rely on the fact that not everyone will withdraw at once

Question 2

What is working capital?

Answer 2

Finance needed to keep a firm day to day business going

Question 3

When banks offer credit what does it do for firms?

Answer 3

It allows firms to make big investments to happen. Business with a good track record are more likely to receive credit

Question 4

What can credit create?

Answer 4

Credit creates instability, inflation as people have access to more money than they earn

Question 5

Collateral Meaning

Answer 5

A secured loan, such as a mortgage where property is pledged against a loan

Question 6

What is a Cash Reserve Requirement (CRR)?

Answer 6

A percentage that banks must keep in cash

e.g 10% of assets

Question 7

Asset and Liability difference

Answer 7

A- Something you own

L- Something you owe

Question 8

What is Monetary policy?

Answer 8

The use of interest rates, money supply and exchange rates to influence economic growth and inflation.

It is used to control the money flow of the economy