Multiple Choice
Which of the following is primarily concerned with the preparation and analysis of financial statements for external users such as investors and creditors?
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1. Introduction to Accounting
Types of Accounting
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Which of the following is a way your bank can make money?
A
Paying higher interest rates on deposits than it earns on loans
B
Waiving all service fees for every customer
C
Charging interest on loans to customers
D
Giving away free cash to account holders
Verified step by step guidance1
Understand the concept of how banks generate revenue: Banks primarily make money by charging interest on loans they provide to customers. This is a fundamental aspect of their business model.
Analyze the options provided: Evaluate each option to determine whether it aligns with the bank's revenue-generating activities.
Option 1: Paying higher interest rates on deposits than it earns on loans - This would result in a loss for the bank, as it would be paying out more than it earns.
Option 2: Waiving all service fees for every customer - While this might attract customers, it would eliminate a source of revenue for the bank, making it unsustainable.
Option 3: Charging interest on loans to customers - This is the correct answer, as banks earn money by lending funds to customers and charging interest on those loans. This is a primary source of income for banks.
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