The Concept of Payment System in Banking

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Questions and Answers

What are the primary functions of Banking Financial Institutions (BFIs) in the context of the financial system of Bangladesh?

Accepting deposits, making loans, providing liquidity, and facilitating payments.

How do Commercial Banks create money in the economy?

Through the process of credit creation, where they accept deposits and make loans, thereby increasing the money supply.

What is the primary distinction between Banking Financial Institutions (BFIs) and Non-Banking Financial Institutions (NBFIs)?

BFIs are licensed to accept deposits, whereas NBFIs are not.

What is the role of Financial Intermediaries in the financial system?

To facilitate the flow of funds between savers and borrowers, thereby promoting economic growth and development. Signup and view all the answers

What is the primary advantage of indirect finance over direct finance?

Indirect finance allows for greater flexibility and risk diversification, as it enables savers to invest in a variety of financial instruments. Signup and view all the answers

How do Commercial Banks influence the money supply in the economy?

Through the creation of new money through credit creation and the destruction of money through loan repayment. Signup and view all the answers

What is the primary function of the Central Bank in the monetary system?

To regulate the money supply and maintain price stability in the economy. Signup and view all the answers

What is the difference between narrow money and broad money?

Narrow money refers to the most liquid forms of money, such as currency and demand deposits, while broad money includes less liquid forms of money, such as time deposits and savings accounts. Signup and view all the answers

What is the role of Financial Markets in the financial system?

To facilitate the exchange of financial assets, such as stocks, bonds, and currencies, and to provide price discovery and risk management. Signup and view all the answers

How do Non-Banking Financial Institutions (NBFIs) contribute to the financial system of Bangladesh?

By providing alternative sources of finance, such as insurance and investment products, and by promoting financial inclusion and deepening. Signup and view all the answers