Asked by Dheandra Armyra on Jun 03, 2024
Verified
The main source of profit for financial institutions is:
A) their ownership of stocks in commercial corporations.
B) their ownership of real assets received in foreclosures on loans to households.
C) the fees charged for holding and servicing checking accounts.
D) the difference between interest paid on deposits and interest received on loans.
E) the difference between the cost of creating new money and the interest paid on loans.
Financial Institutions
Organizations such as banks, credit unions, and finance companies that provide a range of financial services including loans, deposits, and investments.
Real Assets
Physical or tangible assets that have intrinsic value, such as real estate, commodities, or natural resources.
- Identify the functions of commercial banks within the economy, highlighting their contributions to lending and generation of profits.
Verified Answer
JR
Jordan RichardsonJun 07, 2024
Final Answer :
D
Explanation :
The main source of profit for financial institutions is the difference between the interest they pay on deposits and the interest they earn on loans. This is known as the net interest margin (NIM). Financial institutions make a profit by borrowing money at a lower interest rate and lending it out at a higher interest rate. This allows them to earn a profit on the spread between these rates.
Learning Objectives
- Identify the functions of commercial banks within the economy, highlighting their contributions to lending and generation of profits.