Banking and management of financial institutions
6 important questions on Banking and management of financial institutions
What is capital or net worth?
How can the liabilities be subdivided on the balance sheet?
- checkable deposits
- non-transaction deposits
- borrowings
- bank capital
What is a checkable deposit?
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What is a loan?
What are the four basic option a bank has when there is a reserve shortage?
2.Sale of securities (bonds)
3.Borrowing from the FED (central bank)
4.Reducing loans (not renewing loans; selling loans to other banks)
How can a bank maximize its profits? (ways)
Tool 2:banks try to purchase securities with high returns and low risk.
Tool 3:lower risk by diversifying. (àpurchasing different types of assets)
Tool 4:bank must manage the liquidity of its asset so that it can meet deposit outflows and reserve requirements.
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