Unit 2: How Banks Operate

Question 1

What are the 3 core functions of a bank?

Answer 1

1. Accepting deposits
2. Granting loans
3. Facilitating payments

Question 2

True or false - deposits are how banks source the majority of their funds?

Answer 2

True

Question 3

What are some forms of deposits that a bank may accept?

Answer 3

Common forms:
o Saving deposits (salary/wages).
o Fixed term deposits
o Current deposits (such as business accounts).

Less common forms:
o Wholesale debt markets (government/corporate bonds)
o Mortgage-backed securities
o Equities (from selling shares to investors)

Question 4

What are 7 types of loans?

Answer 4

1. Overdraft
2. Credit card
3. Short to medium term loans
4. Long term loans
5. Bills of exchange and promissory notes
6. Equipment Leasing and Hire Purchase
7. Trade finance

Question 5

What is an overdraft?

Answer 5

Credit limit attached to a bank account. Interest is charged on the overdrawn balance.

Question 6

How long are short to medium term loans?

Answer 6

Generally 1-5 years for things like car purcase

Question 7

What is an example of a long term loan?

Answer 7

30 year loan for buying a house.

Question 8

What are bills of exchange/promissory notes?

Answer 8

Specialised instruments, being an unconditional order in writing between parties, where the bank purchases the bill amount from the borrower, deducting charges. On maturity the bill is presented to the borrower and the full amount is collected.

Question 9

What is equipment leasing/hire purchase?

Answer 9

Borrowing for financing of plant, machinery, and vehicles by individuals and businesses.

Question 10

What type of benefits are often linked to equipment leasing/hire purchase?

Answer 10

Tax benefits

Question 11

What is trade finance?

Answer 11

Help for import and export transactions including lending, letters of credit, insurance.

Question 12

Delete

Answer 12

Delete

Question 13

What are examples of facilitating payments?

Answer 13

• Debit cards
• International money transfers
• E-commerce payment systems
• Electronic Funds Transfer (ETF)
• Negotiable instruments (e.g. cheques)
• Periodic payments (e.g., direct debit)
• Periodic collections (e.g., collecting payments such as salary, pension, dividends).

Question 14

True or false: Australia is a global leader in use of electronic payments.

Answer 14

True

Question 15

True or False: In Australia, 1 in 20 in-person card payments are made with a mobile phone.

Answer 15

True

Question 16

Insurance enables a transfer of risk. Explain:

Answer 16

Insurer agrees to pay money to help cover costs should certain events occur. The insurer is taking on the risk of meeting the cost of the loss. Otherwise, you would take that same risk.

Question 17

What do Wealth Management services cover?

Answer 17

Investment, superannuation, and retirement products for individuals and corporations.

Question 18

What are some wealth management services?

Answer 18

1. Allocated pensions
2. Annuities
3. Investment growth bonds
4. Managed funds and superannuation

Question 19

How do allocated pensions work?

Answer 19

Provides regular income in retirement. Income payments funded from a superannuation lump sum.

Question 20

What is an annuity?

Answer 20

Secure investment that pays an income throughout a determined period.

Question 21

Delete

Answer 21

Delete