Questions and Answers
What is a bank?
A financial institution engaged in lending funds obtained from deposits.
What does liquidity mean in banking?
The ease and expense at which one asset can be converted into another asset.
Liquidity mismatch occurs when there is a unity between the contractual amounts and dates of cash inflows and outflows.
False
Which of the following are major functions of banks? (Select all that apply)
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What do banks provide to depositors?
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What are universal banks?
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Which of the following is an example of a universal bank in the Philippines? (Select all that apply)
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What is the purpose of reducing transaction costs in banking?
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What is one example of a transaction cost in banking?
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Banks provide loans that are typically paid back quickly.
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Study Notes
Introduction to Banking
- Banking is defined as a financial institution involved in lending funds obtained from deposits.
- Liquidity refers to the ease and cost of converting one asset into another, crucial for financial operations.
- Liquidity mismatch occurs when cash inflows and outflows do not align in terms of amounts and timing.
Role of Banks
- Banks provide liquidity to depositors while authoring long-term loans, balancing the needs of savers and borrowers.
- They reduce transaction costs associated with finding parties for financial transactions, minimizing search and contractual costs.
Major Functions of Banks
- Deposit Function: Facilitates fund transfer and safekeeping for individuals and businesses.
- Loan Function: Offers loans funded by deposits, subject to credit evaluations.
- Exchange Function: Manages local and international transactions to facilitate commerce.
- Trust Function: Acts as an agent to administer funds and properties under their custody.
Lending Practices
- Involves aggregating small savings to lend to larger borrowers, improving access to credit.
- Banks promote diversification, helping savers mitigate risks by spreading investments across various assets.
Types of Banks
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Universal Banks:
- Can function as investment houses, investing in a range of enterprises.
- Require the highest capitalization, allowing them to offer diversified financial services.
- Prominent examples in the Philippines include BDO, Metrobank, Landbank, BPI, ChinaBank, RCBC, PNB, Security Bank, UnionBank, and DBP.
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Commercial Banks:
- Focus primarily on accepting deposits and granting consumer and business loans.
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Description
Explore the foundational concepts of banking with this quiz on Unit 1 of Banking and Financial Institutions. Dive into the history of banking, understand the relationship between banks and money, and learn how advisory services play a role in the banking sector.
