Banks and Its Classifications BA-FM 31P - A
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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?

    <p>Cash transactions between individuals</p> Signup and view all the answers

    What role do banks play in financial advice?

    <p>They offer wealth management and investment opportunities</p> Signup and view all the answers

    What defines a bank as an intermediary?

    <p>It connects savers with borrowers</p> Signup and view all the answers

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

    <p>Personal loans</p> Signup and view all the answers

    How do banks contribute to the payments system?

    <p>By facilitating the transfer of money through various methods</p> Signup and view all the answers

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

    <p>Interest rates tend to fall.</p> Signup and view all the answers

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

    <p>They are savings products with fixed returns.</p> Signup and view all the answers

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

    <p>It influences the direction of interest rates.</p> Signup and view all the answers

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

    <p>Investment funds return income based on asset performance.</p> Signup and view all the answers

    What coverage does the Philippines Deposit Insurance Corporation provide?

    <p>Up to Php500,000 per customer per bank.</p> Signup and view all the answers

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

    <p>Administrative expenses and market forces.</p> Signup and view all the answers

    Which statement accurately differentiates deposits from investments?

    <p>Deposits provide fixed returns while investments do not.</p> 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?

    <p>Php500,000.</p> Signup and view all the answers

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

    <p>Global reach</p> Signup and view all the answers

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

    <p>Availability of cheap loans</p> Signup and view all the answers

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

    <p>Panic among customers</p> Signup and view all the answers

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

    <p>Universal Bank</p> Signup and view all the answers

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

    <p>Accepting deposits and issuing loans</p> Signup and view all the answers

    Which factor is a direct cause of bank bankruptcy?

    <p>Economic downturns</p> Signup and view all the answers

    What is one primary function of thrift banks?

    <p>Accept savings and time deposits</p> Signup and view all the answers

    Thrift banks primarily obtain their funding from which source?

    <p>Consumer deposits</p> Signup and view all the answers

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

    <p>Extending loans to farmers</p> Signup and view all the answers

    What distinguishes cooperative banks from rural banks?

    <p>Cooperative banks are owned by cooperatives</p> Signup and view all the answers

    What is a potential consequence of a bank run?

    <p>Increased likelihood of bankruptcy</p> Signup and view all the answers

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

    <p>P325M</p> Signup and view all the answers

    What is one of the core principles of Islamic banking?

    <p>Equity participation for profits</p> Signup and view all the answers

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

    <p>Rural banks</p> Signup and view all the answers

    Which of the following statements about Islamic banks is true?

    <p>They engage in profit-sharing with borrowers.</p> Signup and view all the answers

    What is the primary capital requirement for cooperative banks?

    <p>P10M</p> Signup and view all the answers

    What role do banks serve in the financial system?

    <p>They act as financial intermediaries between savers and borrowers.</p> Signup and view all the answers

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

    <p>Investment Fund</p> Signup and view all the answers

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

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

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

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

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

    <p>When the economy is experiencing high inflation.</p> Signup and view all the answers

    What determines the market interest rates in banking?

    <p>The interaction between supply and demand of funds.</p> Signup and view all the answers

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

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

    Which type of deposit is available on demand?

    <p>Current Account</p> 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.

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