Banks and Its Classifications BA-FM 31P

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Questions and Answers

What is one of the primary functions of a bank?

Acting as a government agency

Accepting deposits from customers (correct)

Manufacturing financial products

Conducting marketing research

Which type of account allows customers to deposit money and withdraw funds at will?

Fixed deposit account

Savings account (correct)

Current account (correct)

Investment account

What is the main purpose of granting loans and advances by banks?

To generate profits for the bank (correct)

To support government initiatives

To provide a place for savings

To increase customer deposits

Which payment method is NOT typically facilitated by banks?

Cash transactions between individuals Signup and view all the answers

What role do banks play in financial advice?

They offer wealth management and investment opportunities Signup and view all the answers

What defines a bank as an intermediary?

It connects savers with borrowers Signup and view all the answers

Which of the following is a common type of loan provided by banks?

Personal loans Signup and view all the answers

How do banks contribute to the payments system?

By facilitating the transfer of money through various methods Signup and view all the answers

What happens to interest rates when the supply of funds exceeds demand?

Interest rates tend to fall. Signup and view all the answers

Which of the following best describes the nature of term deposits?

They are savings products with fixed returns. Signup and view all the answers

What role does the BSP's key policy rate play in the banking system?

It influences the direction of interest rates. Signup and view all the answers

What is a primary characteristic of investment funds compared to term deposits?

Investment funds return income based on asset performance. Signup and view all the answers

What coverage does the Philippines Deposit Insurance Corporation provide?

Up to Php500,000 per customer per bank. Signup and view all the answers

What are banks' considerations when determining interest rates on loans?

Administrative expenses and market forces. Signup and view all the answers

Which statement accurately differentiates deposits from investments?

Deposits provide fixed returns while investments do not. Signup and view all the answers

In the event of a bank's insolvency, how much is ensured for each customer by the Philippines Deposit Insurance Corporation?

Php500,000. Signup and view all the answers

What is a primary advantage of banks that contributes to economic growth?

Global reach Signup and view all the answers

Which of the following is NOT a disadvantage associated with banks?

Availability of cheap loans Signup and view all the answers

A bank run typically occurs due to which of the following reasons?

Panic among customers Signup and view all the answers

What type of bank possesses the authority to act as both a commercial bank and an investment house?

Universal Bank Signup and view all the answers

Which of the following is a characteristic function of commercial banks?

Accepting deposits and issuing loans Signup and view all the answers

Which factor is a direct cause of bank bankruptcy?

Economic downturns Signup and view all the answers

What is one primary function of thrift banks?

Accept savings and time deposits Signup and view all the answers

Thrift banks primarily obtain their funding from which source?

Consumer deposits Signup and view all the answers

Which of the following is NOT a service typically offered by thrift banks?

Extending loans to farmers Signup and view all the answers

What distinguishes cooperative banks from rural banks?

Cooperative banks are owned by cooperatives Signup and view all the answers

What is a potential consequence of a bank run?

Increased likelihood of bankruptcy Signup and view all the answers

Which of the following is a required capitalization for thrift banks?

P325M Signup and view all the answers

What is one of the core principles of Islamic banking?

Equity participation for profits Signup and view all the answers

Which bank type is focused on serving rural communities with specifically tailored financial services?

Rural banks Signup and view all the answers

Which of the following statements about Islamic banks is true?

They engage in profit-sharing with borrowers. Signup and view all the answers

What is the primary capital requirement for cooperative banks?

P10M Signup and view all the answers

What role do banks serve in the financial system?

They act as financial intermediaries between savers and borrowers. Signup and view all the answers

Which of the following is NOT covered by the Philippine Deposit Insurance Corporation's insurance?

Investment Fund Signup and view all the answers

What is the primary purpose of the Deposit Insurance Fund (DIF)?

To ensure claims on insured deposits can be paid in case of bank closure. Signup and view all the answers

How does the Bangko Sentral ng Pilipinas (BSP) influence interest rates?

By adjusting the overnight borrowing rate to maintain price stability. Signup and view all the answers

In what scenario would the BSP likely raise the Reverse Repurchase Rate (RRP)?

When the economy is experiencing high inflation. Signup and view all the answers

What determines the market interest rates in banking?

The interaction between supply and demand of funds. Signup and view all the answers

Which banks are covered by the Philippine Deposit Insurance Corporation’s insurance?

Universal, commercial, thrift, rural, cooperative, Islamic, and specialized government banks. Signup and view all the answers

Which type of deposit is available on demand?

Current Account Signup and view all the answers

Study Notes

Bank Definition and Role

A bank is a government-authorized institution that accepts deposits, pays interest, clears checks, and provides loans.
Acts as an intermediary, channeling funds from savers to borrowers while offering various financial services.

Key Functions of Banks

Accepting Deposits: Customers can deposit funds through various accounts (savings, current, or fixed deposits) and withdraw at will.
Granting Loans & Advances: Banks provide loans for personal, business, and governmental needs, charging interest over time.
Payment and Settlement Systems: Essential for domestic and international transactions, banks facilitate money transfers via checks, drafts, and electronic methods.
Providing Financial Services and Advice: Banks offer financial management services, including wealth management and investment opportunities.

Financial Intermediary Role

Banks pool deposited funds to loan out to borrowers, balancing accounts of both depositors and borrowers.
Deposits may have demand options or restrictions.

Philippine Deposit Insurance Corporation (PDIC)

Protects depositors by insuring deposits up to Php500,000 per depositor, per bank.
Funds PDIC through assessments on banks, maintaining a Deposit Insurance Fund.
Covers various bank types, including universal, commercial, thrift, rural, cooperative, and Islamic banks.

Interest Rates in Banks

Bangko Sentral ng Pilipinas (BSP) Monetary Policy: Sets benchmark interest (Reverse Repurchase Rate) influencing loan rates to control inflation.
Market Forces: Interest rates are affected by supply and demand dynamics; administrative and operational costs are also factored in by banks.

Deposits vs. Investments

Deposit: Safe, guaranteed returns through bank products, insured by PDIC.
Investment: Variable returns based on financial asset performance, pooled from multiple investors.

Advantages and Disadvantages of Banking

Advantages: Public wealth safety, access to low-cost loans, economic growth support, rural development, global reach.
Disadvantages: Bankruptcy risk, likelihood of fraud, potential public debt issues.

Bank Run & Bankruptcy

Bank Run: Mass withdrawals by customers due to solvency concerns, leading to increased default chances.
Bankruptcy: Legal status indicating asset insufficiency to meet liabilities, often resulting from economic downturns, mismanagement, fraud, or bank runs.

Classifications of Banks

Universal Banks: Combines commercial banking with investment house capabilities; capitalization of Php4.95B. Examples: BPI, Landbank.
Commercial Banks: Offers everyday banking services, including loans and foreign exchange; capitalization of Php2.4B. Examples: Citibank, Metrobank.
Thrift Banks: Focus on consumer deposits, mortgages, and related services; capitalization of Php325M. Examples: PSBank, Allbank.
Rural and Cooperative Banks: Serve rural economies; rural banks capitalize with Php100M, cooperative banks with Php10M. Examples: Rural Bank of Bacong, Planters Development Bank.
Islamic Banks: Operate under Sharia law, prohibiting interest; profits through equity participation. Examples: Al-Amanah Islamic Bank.

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Description

Explore the various classifications of banks and their roles in monetary policy and central banking in this quiz. This assessment is designed for the BA-FM 31P - A course at Silliman University. Test your understanding of banking definitions and types.

Banks and Its Classifications BA-FM 31P - A