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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?