Banks obtain funds primarily through borrowing (e.g., taking deposits or issuing bonds) and by issuing other liabilities (e.g., creating bank equity). They make profits by charging higher interest rates on loans and securities they hold as assets than the rates they pay on their liabilities, not lower as stated in option B.

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A Bank

Question 79

Multiple Choice

A bank

A) obtains funds by borrowing and by issuing liabilities.
B) makes profits by charging an interest rate on their asset holdings of securities and loans that is lower than the interest and other expenses on their liabilities.
C) does both A and B of the above.
D) does neither A nor B of the above.

Correct Answer: