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Difficulty: MediumCommercial Banks: Functions, Services, and Credit Creation

Match each commercial banking service or operational concept on the left with its correct functional description on the right.

  • Standing OrderAn instruction given by an account holder to the bank to pay a fixed sum of money at regular specified intervals to a named beneficiary.
  • Bank OverdraftA credit facility permitting a current account holder to draw funds beyond their available credit balance up to an agreed limit.
  • Direct DebitAn authorization granted by a customer allowing a creditor to collect varying amounts directly from the customer's account on due dates.
  • Credit CreationThe monetary process through which commercial banks expand total bank deposits by granting loans out of excess cash reserves.

Answer

Standing Order matches payment of a fixed sum at regular intervals; Bank Overdraft matches drawing funds in excess of account balance up to an agreed limit; Direct Debit matches creditor collection of variable amounts directly from the account; Credit Creation matches deposit expansion through bank lending operations.
Each commercial banking term accurately matches its operational definition: Standing Order involves customer-set fixed recurring transfers, Bank Overdraft permits current account overdrawing up to an agreed limit, Direct Debit allows creditor-initiated variable payments, and Credit Creation describes deposit expansion through fractional reserve lending.

Step-by-Step Solution

1
Identify the payment service where the account holder fixes the exact amount and timing of recurring transfers.
Standing Order pairs with payment of a fixed sum at regular specified intervals.
Standing orders are customer-driven instructions for fixed-amount recurring payments.
2
Identify the short-term borrowing arrangement tied specifically to current accounts.
Bank Overdraft pairs with drawing funds beyond the available credit balance up to an agreed limit.
Overdrafts allow account holders to overdraw their balance up to a pre-approved ceiling.
3
Identify the mechanism where a payee claims fluctuating payment amounts from a debtor's account.
Direct Debit pairs with third-party collection of varying amounts from the customer's account.
Direct debits are payee-initiated variable collections authorized in advance by the debtor.
4
Identify the core monetary function whereby commercial banks expand money supply.
Credit Creation pairs with deposit expansion through loan disbursements out of excess reserves.
Banks multiply secondary deposits when loans are credited to borrowers' accounts.

Key Concept

Commercial Bank Functions, Payment Services, and Credit Creation Mechanism
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Topics

Commercial Banks: Functions, Services, and Credit Creation

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