Business Finance

• What is the role of commercial banks?

  Provide financial services to individuals and businesses
• What services do commercial banks offer?

  Accept deposits, make loans, facilitate payments
• What are the functions of central banks?

  Control money supply and issue currency
• How do individuals manage personal income?

  By using banking services for transactions
• What is a long-term investment for a business?

  Expanding the business operations
• What is a long-term investment for an individual?

  Arranging a mortgage to buy a house
• How do central banks regulate financial institutions?

  To maintain economic and financial stability
• What is an overdraft arrangement?

  A limit on spending beyond account balance
• How can businesses benefit from overdraft arrangements?

  To manage cash flow better
• What are some types of short-term financing for businesses?

  Bank overdraft, trade credit, leasing
• What is the difference between a commercial bank and a central bank?

  Commercial banks serve the public; central banks serve the government
• What is the primary function of a commercial bank?

  Accept deposits and make loans
• How do commercial banks create money?

  By lending more than they hold in deposits
• If John deposits $100,000, how much must the bank keep as a reserve if the reserve requirement is 10%?

  $10,000
• What is the interest rate?

  The fee paid to borrow money
• If a customer borrows $100,000 at 6% interest, how much interest do they pay in one year?

  $6,000
• Why do banks offer interest on deposits?

  To attract and retain customers
• How do banks make profits?

  By charging higher interest on loans than on deposits
• What are the main services provided by commercial banks?

  • Accepting deposits
  • Making loans
  • Facilitating payments
  • Providing security for funds
• What are the key differences between currency and bank money?

  • Currency: physical notes and coins
  • Bank money: digital records in accounts
  • Currency is a small part of total money
• What are the main functions of a central bank?

  • Issue currency notes
  • Control money supply
  • Regulate commercial banks
  • Implement monetary policy
• What are the types of short-term financing available for businesses?

  • Bank overdraft
  • Trade credit
  • Leasing
  • Bank loans
  • Credit cards
• What is the importance of monitoring payment transactions?

  • Helps track spending
  • Prevents fraud
  • Ensures accurate budgeting
• What are the risks associated with keeping money at home?

  • Theft
  • Loss
  • Lack of interest earnings
• What are the advantages of using ATMs?

  • 24/7 access to funds
  • Simple transactions
  • Convenience without teller interaction
• What happens if a customer exceeds their overdraft limit?

  • Incurs penalty charges
  • Higher interest rates apply
  • Risk of losing banking services
• What is the significance of the reserve requirement?

  • Ensures banks have liquidity
  • Controls money supply
  • Protects depositors' funds
• Why do banks charge customers for services?

  • To cover operational costs
  • To generate profit
  • To maintain service quality
• What are the benefits of having a credit card?

  • Allows spending beyond current funds
  • Builds credit history
  • Offers rewards and benefits
• What is the role of interest in banking?

  • Compensation for lending money
  • Incentive for saving
  • Source of bank profits
• What are the implications of a bank's creditworthiness assessment?

  • Determines loan approval
  • Affects interest rates
  • Influences borrowing limits
• What may customers be charged for when using machines not operated by their bank?

  Fees for using other banks' machines
• What happens if a customer exceeds their overdraft limit?

  They incur penalty charges and higher interest rates
• What is an unauthorized overdraft?

  Exceeding the overdraft limit set by the bank
• What does a credit card allow a customer to do?

  Spend money up to a previously agreed limit
• What happens if a customer repays their credit card balance by the due date?

  No interest is charged on the balance
• How does a debit card function compared to a credit card?

  A debit card uses existing funds in the account
• What is an overdraft?

  A loan allowing withdrawals beyond account balance
• Why do customers need to pay interest on an overdraft?

  Because it is considered a loan
• What is an unsecured loan?

  A loan without collateral requirement