Financial Crisis

1. How do avow buildings work and how do they make a clear? (4 marks) When an individual or a firm deposits cash into a bank the bank pays interest on the deposits. The bank because uses these deposits to make loans to individuals or firms who be in need of money, with a higher interest rate than that paid for deposits. This dispute in the two interest rates is the source of profit for the bank. Banks excessively charge for services like debit and credit badger usage on card machines and funds transfer betwixt banks, which also contributes to the profit they make. 2. For a retail bank what is the difference between its assets and its liabilities? (4 marks) For a retail bank the main liabilities are the deposits made by individuals and firms. Apart from this other liabilities include items in suspense and transmission (e.g. cheques drawn and waiting to be collected) and the banks capital, which broods of share capital and reserves. The main assets of retail banks consist of its loans. Other assets include reserves held in the banks vault or the central bank, physical assets (e.g. buildings and equipment) and investment securities. Investment securities consist of acceptances by the federal government and loans to other banks. 3. What is a banks liquid state ratio and why is it typically very meek?

(4 marks) Liquidity ratio is the percentage of a banks assets that are held in cash relative to its total assets. This ratio is typically very low since banks want to give break as many loans possible to maximise its profits. Higher liquidity ratio means more cash held at its tills, which could instead be loaned push through and made a profit out of it. 4. What can a bank do if it does not control enough cash to meet withdrawal demands of its customers? (4 marks) Firstly the bank could borrow from other banks by entering into a cut-rate sale & Repurchase agreement (REPO) of some of its paper assets. The borrowing bank keeps some of its assets as a collateral... If you want to pop a full essay, order it on our website: Orderessay

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