1.

What are three primary differences between a credit union and a

commercial bank ?
CREDIT UNIONS
Nonprofit institutions owned by
members
Membership required
Often higher savings rates and lower
fees
May be more limited in the financial
products offered
BANKS
For-profit institutions that may be
privately owned or publicly traded
No membership required
Generally lower savings rates and
higher fees
Typically offer many, varied financial
products

2. Are a bank’s liabilities more liquid or less liquid than its assets?
Explain.
- A bank’s liabilities are more liquid than its assets. A bank must give
depositors their money if they request it. The bank’s assets, however,
may be less liquid because they are tied up in longer-term loans, so the
bank can’t get them as quickly. If many depositors need their money at
once, the bank must either break its promise to depositors or pay until its
reserves are gone. If the bank fails, unpaid depositors lose their money.
In the United States, deposit insurance, backed by the government since
1934, has kept people from fearing the loss of their deposits. A “run on
the banks,” when people call for their money all at once, is rare.

3. Explain how a bank’s sound business practices safeguard depositors’

money.
- Most of these involve good judgment and management of daily bank
operations. Banks invest time and money to train employees in
procedures and practices. Training goals include ensuring accuracy,
encouraging good decision-making regarding creditworthiness of
perspective customers, and teaching how to make sound financial
decisions.
4. Describe the effects of mergers on the banking industry.
- After a merger, some consumers face higher fees and find less
community involvement and lending in local areas. People like to feel
that their money is staying home. Mergers also created an opening,
though, for a new wave of small local banks. Small banks have doubled
the amount loaned to businesses in the last decade.

5. What is a currency exchange ?

- A currency exchange is a business that has the legal right to exchange
one currency for another to its customers. Currency exchange of physical
money (coins and paper bills), is usually done over a counter at a teller
station. Currency exchange businesses that operate such transactions can
be found in a variety of forms and venues. It may be a stand-alone, small
business operating out of a single office, or it may be a larger chain of
small exchange-service booths at airports, or it may be a large
international bank offering currency exchange services at its teller
stations.
- Currency exchange services can also be found through businesses that
offer these services online. This may be offered as part of the services
provided by a bank, forex broker or other financial institution. A
currency exchange business profits from its services either through
adjusting the exchange rate or charging fees or both.
6. What does the term medium of exchange mean?
Medium of exchange is an agreed-upon system for measuring the value of
goods and services.

7. Briefly explain why retail banks developed in the United States.

To help individuals not served by commercial banks save money.

8. What activities are involved in a bank’s enforcement function?

Enforcement is a part of safeguarding money that involves catching those
who attempt to take it. Not only does this function involve physical security,
but it also includes tracking down fraud, making collections, and pursuing
legal actions against those who inflict losses on the bank. Robbers, white-
collar embezzlers, or people who default on loans are all included in the
group targeted by enforcement efforts.
9. The ability to transfer sums of money between financial institutions
safely and effectively depends on what two factors?
Depending on the stability of the institutions, the stability of the countries
where the banks reside, and the security of the money supply itself.

10.Why are bank deposits not considered a form of bank income?

Because the money in bank doesn’t really belong to the bank. You may not
like to think of your savings account as a problem for the bank, but it is one
in theory. If depositors simultaneously want all their money from all their
accounts, banks would be in trouble.