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BANKING
Chapter 1 Study Guide
True/False – Multiple Choice - Completion
 All federally chartered banks must be corporations.
 A bank is a business that wants to make a profit.
 A credit union is a not-for-profit organization.
 A loan company is a financial intermediary that does not receive deposits.
 Record keeping is an important part of securing your money in a bank.
 Commercial banks offer their services to businesses and individuals.
 Credit cards issued by banks are a form of lending.
 In order to make a profit, banks charge higher interest rates for loans than they pay
depositors.
 Today bank customers have many more services available to them.
 Return on equity measures how well a bank is using its equity. (Net income/Total equity).
 Banks distribute the medium of exchange.
 Banks may be chartered by either federal or state governments.
 Banks are essential to maintaining the economy.
 About 60 percent of the deposit and loan business in the United States is done by
commercial banks.
 One result of competition among banks is that more services are available to consumers.
 Banks move money between other banks, banks and individual customers, and governments.
 In the United States, banks and the government work together to form the banking system
to ensure the money supply is adequate, appropriate, and trustworthy.
 The difference between what a bank pays in interest and what it receives in interest is
called spread.
 Sources of income for a bank include investments, loan income, and fees for services.
 Deposits are considered a liability for a bank.
 An insurance company is a nondepository intermediary.
 One big difference between a commercial bank and a mutual savings bank is that a mutual
savings bank is owned by depositors, not stockholders.
 Total assets minus total liabilities equal equity.
 A bank is a financial intermediary for the safeguarding, transferring, exchanging, or lending
of money.
 A central bank serves as the government’s banker.
 A merger occurs when one or more banks join or acquire another bank or banks.
 A bank evaluates the creditworthiness of all customers who apply for loans.
 People who put money into banks are call depositors.
 Revenue minus cost equals profit.
 A liquid asset is anything that can readily be exchanged.
 A liability is a cash obligation.
 A depository intermediary is a financial institution that obtains funds from the public and
uses them to finance its business.
 A commercial bank that specializes only in business banking is sometimes called a wholesale
bank.
 Profit, or net income, is what is left of revenue after expenses are deducted.
Short Answer - Essay
 What is meant by the term medium of exchange?

Briefly explain why retail banks developed in the United States.

Why aren’t bank deposits considered a form of bank income?

Describe the effects of mergers on the banking industry.

Explain how a bank’s sound business practices safeguard depositors’ money.

What are three primary differences between a credit union and a commercial bank?