Week 1-4

Question 1

-Institutions that match up savers and borrowers help ensure that economies function smoothly
-Are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money).

Answer 1

Bank

Question 2

The amount banks pay for deposits and the income they receive on their loans

Answer 2

Interest

Question 3

can be individuals and households, financial and non financial firms, or national and local governments.

Answer 3

Depositors and Borrowers

Question 4

Who lend money to the bank

Answer 4

Depositors

Question 5

(to whom the bank lends money).

Answer 5

Borrowers

Question 6

converting short-term liabilities (deposits) to long-term assets (loans).

Answer 6

maturity transformation

Question 7

Banks can also package the loans they have on their books into a security and sell this to the market to obtain funds they can
re lend

Answer 7

Liquidity transformation and
Securitization

Question 8

• A bank’s most important role

Answer 8

matching up creditors and borrowers

Question 9

They do this because they must hold on reserve, and not lend out, some portion of their deposits—either in cash or in securities that can be quickly converted to cash.

Answer 9

*Banks also create money

Question 10

a government institution that is at the center of a country’s monetary and banking system. Banks keep those required reserves on deposit with central banks, such as the U.S. Federal Reserve, the Bank of Japan, and the European Central Bank.

Answer 10

central bank

Question 11

also lend and recycle excess money within the financial system and create, distribute, and trade securities.
* Banks have several ways of making money besides pocketing the difference (or spread) between the interests-they pay on deposits and borrowed money and the interest they collect from borrowers or securities they hold.

Answer 11

They can earn money
From income from securities they trade; and fees for customer services, such as checking accounts, financial and investment banking, loan servicing, and the origination, distribution, and sale of other financial products, such as insurance and mutual funds

Question 12

Banks earn on average between 1 and 2 percent of their assets (loans and securities

Answer 12

bank’s return on assets

Question 13

also play a central role in the transmission of
monetary policy, one of the government’s most important tools for achieving economic growth without inflation.

Answer 13

Bank

Question 14

A sharp increase in bank reserves or liquid assets for any reason can lead
- by reducing the amount of money banks have to lend, which can lead to higher borrowing costs as customers pay more for scarcer bank funds.
- can hurt economic growth.

Answer 14

credit crunch

Question 15

• Banks’ vulnerabilities arise primarily from three sources:

Answer 15

-a high proportion of short-term funding
-Most deposits are used to finance longer-term loans, which are hard to convert into cash quickly;
-withdrawals, providing basic checking and saving accounts

Question 16

gear their services toward corporate clients. They provide services such as merger and acquisition activity and underwriting among other investment services

Answer 16

Investment banks

Question 17

are hindering their financial lives from enjoying services that lead to financial well- being. Many must resort to services outside the banking system to cash checks or borrow loans and incur higher transaction fees and interest unnecessarily.

Answer 17

Unbanked or underbanked

Question 18

some of the reasons why banking tops the list of pillars required in financial literacy.

Answer 18

• Safeguard your cash
• Manage your finances – record keeping and budgeting
• Receive your paycheck quickly using direct deposit
• Facilitate financial transactions
• Insure your liquid assets
• Use debit and credit card services
• Earn interest
• Borrow loans

Question 19

• is a specific bank account against which checks can be drawn by the account depositor

Answer 19

Checking account

Question 20

used to pay bills, set up an automatic transfer, or use a debit card. Depending on each financial institution, checking accounts can provide features and restrictions.

Answer 20

Transactional account

Question 21

is a basic type of bank account that allows you to deposit money, keep it safe, transfer money to checking account, and/or withdraw funds, all while earning interest.

Answer 21

A saving account

Question 22

is a saving certificate with a fixed maturity date and specified fixed interest rate that can be issued in any denomination aside from minimum investment requirements

Answer 22

Certificate of Deposit

Question 23

A CD restricts access to the funds until

Answer 23

the maturity date of the investment

Question 24

account is an interest-bearing account, provides the account holder with limited check writing ability.

offering benefits of?

Answer 24

Money market

combined saving and checking account

Question 25

is a method of banking in which transactions are conducted electronically using a device such as a computer or a cell phone.

Answer 25

Online banking

Question 26

allows your employer to deposit your earnings electronically into your bank account which allows you to get to your money faster than having to deposit a paper check and wait for it to clear before you can access available funds

Answer 26

Payroll direct deposit

Question 27

is used to determine where to route funds to or from for each financial institution.

Answer 27

Routing number

Question 28

is the assigned number to each customer to indicate ownership.

Answer 28

Account number

Question 29

takes money from your bank account (money that you have)

Answer 29

A debit card

Question 30

is borrowed money charged to your account (money you must pay back plus applicable interest).

Answer 30

Credit Card

Question 31

• The difference between a debit card and a credit card

Answer 31

from which source the cards pull the money.

Question 32

– (debits) you give your permission to the company to take the payments from your bank account.

Answer 32

Automatic Bill Payment

Question 33

(recurring) you give permission to your bank or credit union to send the payments to the company.

Answer 33

Bill-pay

Question 34

Automated teller machine (ATM)

Answer 34

an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller

Question 35

are financial institutions who offer financial services such as accepting deposits, lending money, offering debit and credit cards, certificates of deposit, and many other financial services.

Answer 35

Banks & Credit Unions

Question 36

function to generate profits for their shareholders. The need to make profit results in higher fees, but lower returns to consumers.

Answer 36

Banks

Question 37

operate as not-for-profit organizations designed to serve their members who are also de facto owners

Answer 37

Credit Unions

Question 38

Characteristics
Banks

Answer 38

1.Can have multiple locations (national and international)
2. Eligibility to join has little restrictions to none
3. Convenience and numerous ATM machines
4. Sophisticated electronic banking technology
5. Wide range of choices in services and products
6. Profit-driven to satisfy shareholders
7. They serve customers

Question 39

Characteristics
Credit Union

Answer 39

1.Have limited locations by region or state
2.Eligibility to join is restricted to individuals affiliated with certain groups
3.Limited ATM locations
4.Limited online banking services, depending on size
5.Limited range of choices in services and products, depending on size
6.not-for-profit driven to satisfy members/owners
7.They serve members/ de facto owners

Question 40

is a practice used by financial institutions to mitigate financial risks resulting from a mismatch of assets and liabilities

Answer 40

Asset and liability management (ALM)

Question 41

combination of risk management and financial planning

Answer 41

-ALM strategies

Question 42

are often used by organizations to manage long-term risks that can arise due to changing circumstances.

Answer 42

financial planning

Question 43

financial institutions can achieve greater efficiency and profitability
while also reducing risk.

Answer 43

By strategically matching of assets and liabilities,

Question 44

financial institutions can achieve greater efficiency and profitability
while also reducing risk.

Answer 44

By strategically matching of assets and liabilities,

Question 45

Most often, the mismatches are a result of changes to the
financial landscape, such as?

Answer 45

changing interest rates or liquidity
requirements.

Question 46

is a coordinated process that uses frameworks to
oversee an organization’s entire balance sheet.

Answer 46

ALM (Asset Liabilities Management)

Question 47

focus on asset management and risk mitigation on a macro level,
addressing areas such as market, liquidity , and credit risks.

Answer 47

ALM practices

Question 48

is an ongoing process that continuously monitors risks to ensure that an organization is within its risk tolerance and adhering to regulatory
frameworks.

Answer 48

ALM

Question 49

benefits of implementing ALM

Answer 49

-manage its liabilities strategically to better
-prepare itself for future uncertainties.
-allows an institution to recognize and quantify
the risks present on its balance sheet and reduce risks resulting from
a mismatch of assets and liabilities.

Question 50

downsides of ALM

Answer 50

• implementing a proper framework.
  no general framework

Question 51

most common risks addressed by ALM

Answer 51

interest rate risk and
liquidity risk.

Question 52

risk refers to risks associated with changes to interest
rates, and how changing interest rates affect future cash flows.
Financial institutions typically hold assets and liabilities that are
affected by changing interest rates.

Answer 52

Interest rate

most common examples are deposits (assets) and loans
(liabilities).

Question 53

refers to risks associated with a financial institution’s
ability to facilitate it’s present and future cash-flow obligations, also
known as liquidity.

Answer 53

Liquidity Risk

Question 54

which are risks
associated with changes to exchange rates. When assets and
liabilities are held in different currencies, a change in exchange rates
can result in a mismatch.

Answer 54

currency risk,

Question 55

which are risks associated
with changing equity prices. Such risks are often mitigated
through futures , options, or derivatives.

Answer 55

capital market risk,