BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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high initial bank account opening fees
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allocating customers’ money for daily expenses and company’s money for quarterly bills
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lending money at higher interest rates than what they are paying out for savings accounts
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circulating printed money into the economy and keeping a percentage for daily operations
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Detailed explanation-1: -Banks generally make money by borrowing money from depositors and compensating them with a certain interest rate. The banks will lend the money out to borrowers, charging the borrowers a higher interest rate and profiting off the interest rate spread.
Detailed explanation-2: -Banks only need to keep a specific amount of cash on hand and can create loans from the money you deposit. Fractional reserves work to expand the economy by freeing capital for lending. Today, most economies’ financial systems use fractional reserve banking.
Detailed explanation-3: -When interest rates decline, savings account rates also drop. When interest rates rise, savings account rates are bid up. Generally speaking, central banks and governments support low-interest rate environments. This artificially pushes down the rates earned everywhere else in the economy.
Detailed explanation-4: -Banks make a profit by charging a higher rate on loans than they pay on deposits. As rates rise, the difference between the two grows, and so do net interest profits.
Detailed explanation-5: -Banks charge borrowers a slightly higher interest rate than they pay depositors. The difference is their profit. Since banks compete with each other for both depositors and borrowers, interest rates remain within a narrow range of each other.