Author Question: Explain what is meant by the phrase a bank's balancing act. What will be an ideal ... (Read 102 times)

Zoey63294 · **on:** Jun 29, 2018

Explain what is meant by the phrase a bank's balancing act.

What will be an ideal response?

Question 2

You want to purchase two umbrellas. The price is 40 per umbrella, 2 for 60, 3 for 75. What will be the marginal cost to you of buying a third umbrella?

A) 75
B) 25
C) 20
D) 15
E) 10

Chocorrol77 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Banks accept deposits and make loans with the funds they receive from the deposits. Banks profit if the interest rate they charge on their loans exceeds the interest rate they pay on their deposits. Loans are made for a specified length of time and cannot be called in before they are due. However, deposits can be withdrawn at any time by the depositors. Therefore a bank must perform a balancing act: It is risky to lend too much of the deposits and run the risk of mass withdrawals that would create a crisis for the bank. However, it is by making loans that the bank earns a profit.

Answer to Question 2

D