5. Please write short answers for the following questions (27 points) a) Why do banks hold capital? b) Name 2 assets and 2 liabilities of banks? c) Why do banks have high liabilities? d) Define reserve requirement e) Define fed funds f) Differentiate between demand deposits and time deposits g) Name 2 revenues of a bank h) Name 2 expenses of a bank i) Define commercial loans consumer loans and mortgages.

Question

5. Please write short answers for the following questions (27 points) a) Why do banks hold capital? b) Name 2 assets and 2 liabilities of banks? c) Why do banks have high liabilities? d) Define reserve requirement e) Define fed funds f) Differentiate between demand deposits and time deposits g) Name 2 revenues of a bank h) Name 2 expenses of a bank i) Define commercial loans consumer loans and mortgages.

Answer 1

a) Banks hold capital to absorb potential losses and ensure stability in the event of financial distress.b) Assets: Loans, Investments; Liabilities: Deposits, Borrowings.c) Banks have high liabilities due to the large amount of customer deposits they hold.d) Reserve requirement is the amount of funds that a bank must hold in reserve against specified deposit liabilities.e) Fed funds are overnight borrowings between banks to maintain their reserve requirements.f) Demand deposits can be withdrawn at any time, while time deposits have a fixed maturity date.g) Revenues: Interest on loans, Service fees.h) Expenses: Employee salaries, Loan loss provisions.i) Commercial loans are for businesses, consumer loans are for individuals, and mortgages are for real estate purchases.

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