The principal and interest What is the true definition of Compound interest? Main part amount you are borrowing

One component is vault cash, the currency sitting in banks’ branches and ATMs
What type of securities are banks allowed to hold?

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  These include Treasury bonds, municipal bonds, and corporate bonds or mortgage-backed securities (MBSs) that receive high grades from rating agencies.
  

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  Banks are not allowed to hold stocks or junk bonds.
  

Why are securities held by banks often called secondary reserves?

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  If depositors make large withdrawals, a bank may run low on reserves, but it can easily get more by selling securities. For this reason, securities held by banks are often called secondary reserves
  

What is off-balance-sheet (OBS) activities of a bank?

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  Off-balance-sheet (OBS) - activities bank activities that produce income but are not reflected in the assets and liabilities reported on the balance sheet.
  

Indicate the incorrect forms of Off-balance sheet activities:

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  Forms of Off-balance sheet activities:
  
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  1) Lines of Credit
  
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  2) Letters of Credit
  
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  3) Asset Management
  
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  4) Derivatives
  

Find the true statement about Lines of credit:

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  A line of credit (also called a loan commitment) gives an individual or firm the right to borrow a certain amount of money at any time. Banks grant lines of credit to build long-term relationships with borrowers.
  
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  Lines of credit also produce income for banks, because firms pay fees to keep them open. Firms are willing to pay for the guarantee of a quick loan when it is needed.
  
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  A line of credit does not affect a bank’s balance sheet until an actual loan is made.
  

Select the best explanation of Letter of credit:

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  Letter of credit- a bank’s guarantee payment, in return for a fee, of a payment promised by a firm.
  
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  There are two kinds of letters of credit:
  
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  ■ A commercial letter of credit - guarantees a payment for goods or services.
  

“An importer has ordered goods from a foreign company, promising to pay when the goods arrive. The foreign company may be wary of shipping the goods, because the importer might not pay the bill. The importer solves this problem by purchasing a letter of credit from a bank. The foreign company is willing to ship because payment is guaranteed”. What type of letter of credit does this scenario refer to?