Examkin

Question

Difficulty: EasyNon-Bank Financial Intermediaries

Which of the following primary functions distinguishes commercial banks from non-bank financial intermediaries?

  1. Accepting demand deposits and issuing chequebooks to customersAnswer
  2. B
    Mobilizing savings from households for investment purposes
  3. C
    Providing loan facilities to individual and corporate borrowers
  4. D
    Channeling funds from surplus economic units to deficit economic units

Answer

Accepting demand deposits and issuing chequebooks to customers
Accepting demand deposits (current account deposits) and issuing chequebooks is a unique operational function restricted to commercial banks (deposit-money banks). Non-bank financial intermediaries such as insurance companies, pension funds, and building societies mobilize specialized long-term savings and grant loans, but they are legally precluded from operating current accounts or issuing legal tender cheques.

Step-by-Step Solution

1
Analyze the general role of financial intermediaries in the economy.
Both commercial banks and non-bank financial intermediaries (such as insurance companies, building societies, and pension funds) mobilize savings and extend loans.
This establishes the shared characteristics between the two types of financial institutions.
2
Identify the exclusive privilege restricted to commercial banks.
Commercial banks are deposit-money banks authorized to maintain demand deposits (current accounts) and issue chequebooks, whereas non-bank financial intermediaries cannot create demand deposits or issue cheques payable to third parties.
This functional boundary separates commercial banks from non-bank financial institutions.

Key Concept

Distinctive Functions of Commercial Banks vs Non-Bank Financial Intermediaries
Rate this question

Topics

Non-Bank Financial Intermediaries

More questions from this topic