Podcast
Questions and Answers
What is the primary function of a bank?
What is the primary function of a bank?
- Providing insurance services
- Issuing credit cards
- Accepting deposits and making loans (correct)
- Investing in capital markets
What system do most countries institutionalize in banking?
What system do most countries institutionalize in banking?
- Full-reserve banking
- Free banking
- Socialist banking
- Fractional-reserve banking (correct)
What are banks generally subject to in order to ensure financial stability?
What are banks generally subject to in order to ensure financial stability?
- Minimum capital requirements (correct)
- Investment restrictions
- Tax exemptions
- Maximum loan limits
Where did banking in its modern sense evolve?
Where did banking in its modern sense evolve?
What role do banks play in the economy of a country?
What role do banks play in the economy of a country?
Flashcards
Primary function of a bank
Primary function of a bank
Banks primarily accept deposits from customers and provide loans to borrowers.
Fractional-reserve banking
Fractional-reserve banking
Fractional-reserve banking is a system where banks hold only a fraction of their deposits as reserves and lend out the rest.
Bank regulations for stability
Bank regulations for stability
Banks are usually subject to minimum capital requirements in order to ensure financial stability
Origins of modern banking
Origins of modern banking
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Banks role in economy
Banks role in economy
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Study Notes
Banking Overview
- The primary function of a bank is to act as a financial intermediary, facilitating the flow of money between savers and borrowers.
Banking System
- Most countries institutionalize a fractional reserve banking system, which allows banks to lend a portion of deposits and maintain a fraction as reserves.
Regulation and Supervision
- Banks are generally subject to strict regulations and supervision to ensure financial stability, including capital requirements, liquidity requirements, and risk management guidelines.
Evolution of Banking
- Banking in its modern sense evolved in medieval Italy, specifically in the city-states of Florence, Venice, and Genoa.
Role of Banks in the Economy
- Banks play a crucial role in the economy by providing liquidity, facilitating transactions, and enabling investment and growth by channelling savings into productive activities.
- They also act as a conduit for monetary policy, implementing central bank decisions to control inflation, manage exchange rates, and stabilize the economy.
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