4.2.4.2 Commercial banks and investment banks NOTES

What is the primary focus of a commercial bank?

• Issuing securities

• Deposit-taking and lending

• Facilitating complex financial transactions

• Providing bespoke financial advisory services

Which of the following is NOT a main function of a commercial bank?

• Accepting deposits

• Offering payment services

• Providing loans

• Facilitating mergers and acquisitions

What does the asset side of a commercial bank's balance sheet typically include?

• Borrowings from financial institutions

• Shareholder equity

• Customer deposits

• Loans to customers

Which objective might conflict with a commercial bank's profitability when maintaining high liquidity?

• Liquidity

• Security

• Operational efficiency

• Customer service

In fractional reserve banking, what percentage of deposits can banks lend out if the reserve requirement is 10%?

• 100%

• 10%

• 90%

• 50%

What is a significant real-world factor that reduces the theoretical money multiplier?

• High consumer spending

• Low tax rates

• Increased digital transactions

• Import spending

What is the primary way banks create money?

• Issuing government bonds

• Investing in the stock market

• Printing new banknotes

• Giving loans to customers

What does the 'liquidity coverage ratio' introduced by Basle III require?

• Banks to maintain a certain level of liquid assets

• Banks to increase their investment in securities

• Banks to have more physical cash on hand

• Banks to reduce their lending practices

What could potentially increase a bank's ability to lend?

• Higher capital ratios

• Decreased shareholder equity

• Increased operational costs

• Lower capital ratios

Which of the following is NOT a reason why banks might hold higher reserves than required?

• Desire to lend more during economic booms

• Expectation of higher deposit withdrawals

• Fear of increased loan defaults during recessions

• Safety reserve ratio considerations