Insurance

Cash can be easily?

Lost, stolen, and damaged

Bank

A financial institution licensed to receive and store deposits, and provide loans and other financial services to individuals and organizations

Deposit

A sum of money securely stored at a bank

What is digital currency safeguarded by

Computer systems

Loan, what can loans enable

A sum of money borrowed with the expectation to be paid back with interest over a specific period of time. Loans can enable economic activities such as buying homes, starting businesses, and using credit cards.

Debtor

An individual or entity that owes money to another party.

In loan transactions, there are how many parties

2(debtor and creditor)

Creditor

An individual or entity that lends money or extends credit to another.

For the use of the depositors money, banks offer what to them?

interest and services. Services like secure storage, easy access, online banking, and deposit insurance

interest

The cost (or income) of borrowing (from loaning) money.

Net interest margin

Also called “ interest rate spread”, it is the difference between the interest banks earns on their loans, and the interest bank earns on their loans and the interest banks.

How do banks make money

• Banks collect money from customers through savings accounts, checking accounts, and certificates of deposit (CDs). The bank pays a small amount of interest to the depositors for holding their money. This cost is called interest expense.

• Issuing Loans (Earning Interest): The bank takes that pooled money and lends it out as mortgages, auto loans, personal loans, or business loans at a higher interest rate. This revenue is called interest income.

• Pocketing the Spread: The difference between what the bank earns on loans and what it pays on deposits is the profit margin. For example, if a bank earns an average of 6% on its loans and pays 1% to its depositors, the net interest margin captures that core profitability

Bank run

Occurs when too many people try to withdraw their money from a bank at the same time, fearing the bank wont be able to meet its financial obligations

What does FDIC insurance guarentee

that it will maintain public trust and prevents bank runs by guaranteeing deposits

Retail banks

provides personal banking products and services to consumers and small businesses. Operates through branch locations, online platforms, and mobile apps. walking into a local branch of a bank like U.S. Bank to deposit your paycheck into a checking account and set up a savings account. ex. A customer wants to open a savings account and wants to understand the differences between a regular savings account and a money market account

Commerical banks

Serve larger businesses and corporation, offer services like large loans, real estate financing, and cash management. ex. A local business is expanding and needs a loan to purchase new equipment and increase production capacity.

Central banks

Implement monetary policy to manage the economy, regulate the banking system and ensure financial stability, acts as the lender of last resort during financial crises. ex. The economy is experiencing high inflation, and it is undecided whether to raise interest rates to curb inflation or keep them low to encourage spending and investment.

Investment banks

Helps entities raise capital through stocks and bonds, provides advisory services for mergers acquisitions, and financial transactions. ex. two major companies are considering a merger and need advisory services to evaluate the financial and strategic benefits

Credit unions

Member owned financial cooperatives, offer higher deposit interest rates and lower loan rates, membership is often based on a common community. ex. An employee of a large university wants to open a savings account with higher interest rates than those offered by traditional retail banks.