A commercial bank has many customers who need to make daily payments, but these customers also want immediate access to their money. Which account is most suitable?, Deposit account, because it normally pays interest, Loan account, because funds are available for a stated period, Current account, because it provides easy and immediate access, Overdraft account, because customers can borrow beyond their balance, A bank notices that many customers have surplus funds they do not currently want to spend, while several firms need finance for investment. Which role is the bank performing?, Financial intermediation, Payment transmission, Liquidity management, Foreign-currency dealing, A customer needs temporary finance because their expenses occur before their salary is received. They expect the shortage to disappear within a few weeks. Which borrowing method is most appropriate?, Long-term loan, Deposit account, Mortgage, Overdraft, Why can a commercial bank face a conflict between profitability and liquidity?, More liquid assets always generate the highest interest income., Long-term lending can raise returns but reduce the bank's ability to meet withdrawals., Keeping all funds in cash guarantees both maximum liquidity and maximum profitability., Higher interest paid to savers automatically increases bank liquidity., A bank pays savers 2% interest on their deposits and charges borrowers 7% interest on loans. Which concept most directly explains the bank's interest-based profit?, Collateral, Interest spread, Liquidity ratio, Money transmission, A company applies for a large bank loan. Before approving it, the bank examines its accounts and business plan and asks the company to offer an asset as security. Why?, To make the loan more liquid, To increase the firm's deposit interest, To reduce the risk of loss if the loan is not repaid, To allow the firm to spend beyond its current account balance, Which situation best demonstrates the difference between a payment service and a deposit account?, A customer uses online banking to transfer money from a current account., A customer leaves money in a deposit account to earn interest., A customer uses an overdraft to cover a temporary shortage., A customer obtains a loan for a specific investment project., A commercial bank wants to increase its profitability by lending more money in long-term loans. What is the most important risk it must consider?, Customers may be unable to compare prices between goods., The bank may have insufficient liquid assets to meet withdrawal requests., Depositors may automatically become borrowers., The bank may lose its ability to provide foreign currency., Which example best represents an additional service rather than one of the three traditional functions of commercial banks?, Accepting deposits from households, Lending money to firms, Enabling customers to make payments, Providing foreign-currency exchange and insurance, An Islamic bank provides finance to a firm and receives an agreed share of the firm's profits rather than charging conventional interest on the finance. Which statement best explains this arrangement?, It is a conventional interest-spread arrangement., It is an overdraft because repayment depends on business performance., It represents profit-sharing under Islamic finance principles., It is a deposit account because the bank's return depends on profits.

Banking 2

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