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Questions and Answers
Like Primary Functions of Bank, the secondary functions are also classified into two parts:
Like Primary Functions of Bank, the secondary functions are also classified into two parts:
- Accepting of deposits and Utility Functions
- Accepting of deposits and Agency functions
- Accepting of deposits and Granting of loans and advances
- Agency functions and Utility Functions (correct)
Liquidity management:
Liquidity management:
- is maintaining a minimum level of capital adequacy in the bank. Available capital should not be too little or too high
- relates to trying to obtain high-interest rates from borrowers and reducing the risks of those loans
- is about trying to find cheap funds and use them as a loan
- is managing financial obligations through liquidity or cash money (correct)
Asset management:
Asset management:
- is maintaining a minimum level of capital adequacy in the bank. Available capital should not be too little or too high
- relates to trying to obtain high-interest rates from borrowers and reducing the risks of those loans (correct)
- is about trying to find cheap funds and use them as a loan
- is managing financial obligations through liquidity or cash money
Capital adequacy management:
Capital adequacy management:
Licensing:
Licensing:
Supervision:
Supervision:
One of the objectives of bank regulation is to avoid misuse of banks that means:
One of the objectives of bank regulation is to avoid misuse of banks that means:
Supervision of the bank's activities should done by:
Supervision of the bank's activities should done by:
One of the objectives of bank regulation is the systemic risk reduction that means:
One of the objectives of bank regulation is the systemic risk reduction that means:
It refers to the risks associated with changes to exchange rates:
It refers to the risks associated with changes to exchange rates:
Flashcards
Secondary Functions of a Bank
Secondary Functions of a Bank
The secondary functions of a bank are categorized into two main types: Agency functions (acting as an intermediary between parties) and Utility functions (offering services like safe deposit boxes, locker facilities, and foreign exchange services).
Liquidity Management
Liquidity Management
Managing liquidity involves ensuring a bank has enough cash on hand to meet its short-term obligations and handle unexpected withdrawals.
Asset Management
Asset Management
Asset Management focuses on maximizing the return on a bank's assets (loans, investments) while minimizing risks.
Liability Management
Liability Management
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Capital adequacy management
Capital adequacy management
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Licensing
Licensing
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Supervision
Supervision
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One goal of Bank Regulation
One goal of Bank Regulation
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Who supervises banks?
Who supervises banks?
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Systemic Risk Reduction
Systemic Risk Reduction
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Currency Risk
Currency Risk
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Study Notes
Bank Functions and Management
- Secondary Bank Functions: Classified into agency functions and utility functions.
- Liquidity Management: Involves obtaining favorable interest rates from borrowers, managing loans, and using cash to fulfill obligations. It aims to maintain proper levels of capital adequacy.
- Asset Management: Also focuses on obtaining favorable interest rates and managing loan risks.
- Liability Management: Focuses on securing cheap funding sources, using the funds as loans, and managing liquidity and obligations.
- Capital Adequacy Management: Maintaining suitable levels of capital within the bank, balancing the amount to avoid too little or too much.
Bank Regulation
- Licensing: Supervision of bank activities by a government authority. This process involves issuing licenses, ensuring compliance, and oversight.
- Supervision: A continuous process ensuring banks comply with regulations and monitoring for deviations. Also involves assessing risks associated with a bank.
- Bank Regulation Objective: Preventing misuse of banks; reducing the risk of bank failures and misuse for criminal activity; and protecting bank creditors.
- Supervision Body: Consists of a government regulatory body and not a private sector entity, insurance company or competitor.
- Systemic Risk Reduction: Aimed at avoiding bank disruptions and reducing the risks of various failures.
- Exchange Rate Risks: Risks associated with fluctuations in exchange rates.
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