PRINCIPLES OF BANKING COMPREHENSIVE
ANSWERS AND QUESTIONS SET A+
✔✔monetary policy - ✔✔Government policy that attempts to manage the economy by
controlling the money supply and thus interest rates.
✔✔Why does the Federal Reserve require commercial banks to maintain reserves with
them? - ✔✔It gives the Federal Reserve more control over the money supply and
interest rates.
✔✔What are some of the objectives of the Fed? - ✔✔Maximize employment, stabilize
prices, and moderate interest rates
✔✔letter of credit - ✔✔A promise by the bank to pay the seller a given amount if certain
conditions are met.
✔✔Export Credit - ✔✔loans to boost exports
✔✔Foreign Exchange - ✔✔foreign money needed to carry out international
transactions.
Exchange of one country's currency for the exchange of another.
✔✔correspondant bank - ✔✔A bank in which another bank has an account (and vice
versa) for the purpose of facilitating fund transfers.
Neither bank has ownership interest in the other or has any control over other.
Engage in a mutually beneficial relationship.
✔✔Representative Offices - ✔✔are small satellite service offices established by a bank
that has a relationship with an overseas correspondent bank. A representative offices
provides assistance in dealings with the correspondent banl.
✔✔foreign bank branch - ✔✔is simply a branch of the bank located in a foreign country.
It is subject to regulations of its home country as well as the foreign country where it
operates
, ✔✔Subsidiary Bank - ✔✔A bank that is formed in a foreign country and is either
completely or partially owned and controlled by a bank from a different country
✔✔Affiliate Bank - ✔✔is a bank that is partially owned by a foreign bank, but the foreign
bank does not control it.
✔✔Edge Act Bank - ✔✔Act allows federally Charter bank subsidiaries to engage in
international banking activities even physically located in the US
✔✔Off Shore Banking Centers - ✔✔do not actually provide services to customers in
local economy. Instead the banks manage accounts that are eternal to the country.
Offer lower regulations and taxes.
✔✔International Banking - ✔✔Can provide the same services to it's customers as
domestic banking but also provide additional services. Help finance and trade through
letter of credit and export credit. They also provide exchange services so business can
payments in the local currency.
✔✔What's the best explanation of a letter of credit? - ✔✔A document that a buyer gets
from a bank to use as payment for goods
✔✔Why would a business choose an Offshore Banking Center? - ✔✔They offer lower
regulations and taxes.
✔✔How does an affiliate bank and a subsidiary bank differ? - ✔✔An affiliate bank is
partially owned by another bank, but that bank does not control it. A subsidiary bank is
owned and controlled by a parent bank.
✔✔What type of bank is located in a foreign country and is used by your domestic bank
to help their customers conduct business in the foreign country? - ✔✔A Correspondent
Bank
✔✔Financial Leverage - ✔✔Multiples a company's financial strength with regard to
common stockholders. allowing them to provide those stockholders with with a large
return
✔✔Net Income - ✔✔the difference between total revenue and total expenses when total
revenue is greater
✔✔Equity Multiplier - ✔✔Total Assets/Total Equity
✔✔Lease Financing - ✔✔entails a bank purchasing capital equipment at a customer's
request and then leasing this equipment to the customer
ANSWERS AND QUESTIONS SET A+
✔✔monetary policy - ✔✔Government policy that attempts to manage the economy by
controlling the money supply and thus interest rates.
✔✔Why does the Federal Reserve require commercial banks to maintain reserves with
them? - ✔✔It gives the Federal Reserve more control over the money supply and
interest rates.
✔✔What are some of the objectives of the Fed? - ✔✔Maximize employment, stabilize
prices, and moderate interest rates
✔✔letter of credit - ✔✔A promise by the bank to pay the seller a given amount if certain
conditions are met.
✔✔Export Credit - ✔✔loans to boost exports
✔✔Foreign Exchange - ✔✔foreign money needed to carry out international
transactions.
Exchange of one country's currency for the exchange of another.
✔✔correspondant bank - ✔✔A bank in which another bank has an account (and vice
versa) for the purpose of facilitating fund transfers.
Neither bank has ownership interest in the other or has any control over other.
Engage in a mutually beneficial relationship.
✔✔Representative Offices - ✔✔are small satellite service offices established by a bank
that has a relationship with an overseas correspondent bank. A representative offices
provides assistance in dealings with the correspondent banl.
✔✔foreign bank branch - ✔✔is simply a branch of the bank located in a foreign country.
It is subject to regulations of its home country as well as the foreign country where it
operates
, ✔✔Subsidiary Bank - ✔✔A bank that is formed in a foreign country and is either
completely or partially owned and controlled by a bank from a different country
✔✔Affiliate Bank - ✔✔is a bank that is partially owned by a foreign bank, but the foreign
bank does not control it.
✔✔Edge Act Bank - ✔✔Act allows federally Charter bank subsidiaries to engage in
international banking activities even physically located in the US
✔✔Off Shore Banking Centers - ✔✔do not actually provide services to customers in
local economy. Instead the banks manage accounts that are eternal to the country.
Offer lower regulations and taxes.
✔✔International Banking - ✔✔Can provide the same services to it's customers as
domestic banking but also provide additional services. Help finance and trade through
letter of credit and export credit. They also provide exchange services so business can
payments in the local currency.
✔✔What's the best explanation of a letter of credit? - ✔✔A document that a buyer gets
from a bank to use as payment for goods
✔✔Why would a business choose an Offshore Banking Center? - ✔✔They offer lower
regulations and taxes.
✔✔How does an affiliate bank and a subsidiary bank differ? - ✔✔An affiliate bank is
partially owned by another bank, but that bank does not control it. A subsidiary bank is
owned and controlled by a parent bank.
✔✔What type of bank is located in a foreign country and is used by your domestic bank
to help their customers conduct business in the foreign country? - ✔✔A Correspondent
Bank
✔✔Financial Leverage - ✔✔Multiples a company's financial strength with regard to
common stockholders. allowing them to provide those stockholders with with a large
return
✔✔Net Income - ✔✔the difference between total revenue and total expenses when total
revenue is greater
✔✔Equity Multiplier - ✔✔Total Assets/Total Equity
✔✔Lease Financing - ✔✔entails a bank purchasing capital equipment at a customer's
request and then leasing this equipment to the customer
