Westminster International University in Tashkent
Understanding Finance, Semester II, 2024/2025
Seminar 2
Learning Outcomes:
Identify the major financial institutions and their roles in the financial system.
Describe how commercial banking and investment banking differ and identify the functions
of banks and of the banking system.
Describe bank management practices in terms of bank liquidity and bank solvency.
Review Questions:
Question 1
Describe the major financial institutions engaged in getting the savings of individuals into business
firms that want to make investments to maintain and grow their firms.
Question 2
Compare commercial banking with investment banking. What is universal banking?
Question 3
What is meant by bank liquidity and bank solvency?
Question 4
Describe the functions of banks and the banking system.
Question 5
Describe what is meant by liquidity risk, credit risk, and interest rate risk.
Scenario Questions:
Question 6
Emma is exploring different types of financial institutions to open a savings account. She wants to choose
one that aligns with her values and offers personalized services. During her research, she learns about credit
unions and is intrigued by their structure and purpose.
Emma encounters the following question during her research:
Based on your understanding of credit unions, which option should Emma choose?
a. They are for-profit organizations.
b. They are made up of individuals who possess common bonds (membership) of association.
c. They are institutions that derive funds from investment activities.
d. They are generally larger than most commercial banks.
Question 7:
Sarah is the CFO of a tech startup planning to raise capital for expansion. She decides to issue new
shares of the company to attract investors. However, she is unsure how to connect with potential
investors or manage the complex process of issuing these new securities. Which type of financial
institution should Sarah approach to help her market and sell these new securities?
Question 8:
David has been saving money and wants to start investing in the stock market. He is interested in
buying shares of a company that recently went public and also wants to explore selling some of the
shares he owns from a previous investment. However, he isn’t sure where to go to execute these
transactions. Which type of financial institution should David approach to help him buy new shares
and sell his previously purchased securities?
Question 9:
Maria has recently started a small business and is exploring options for managing her finances. She
needs a place to deposit her business earnings securely, access an account that allows her to write
checks for day-to-day expenses, and obtain a loan to invest in new equipment. What kind of
financial institution would offer Maria all these services—secure deposits, check-writing
capabilities, and business loans—under one roof?
Question 10:
James owns a small manufacturing business and is concerned about protecting himself and his
company from unexpected risks. He wants to ensure his family is financially secure in case of an
accident, safeguard his property from potential damages, and cover any liabilities that might arise
from business operations. What type of institution should James work with to secure financial
protection against life, property, liability, and health uncertainties?
Question 11:
A local bank has recently experienced an increase in customer withdrawals due to an economic
downturn. At the same time, the bank has several short-term liabilities that are approaching their due
dates. The bank’s management team is working to ensure they can meet both the depositor
withdrawals and their other financial obligations without disrupting daily operations. What does this
situation highlight about the importance of a bank's ability to manage its financial resources
effectively?
Question 12:
A regional bank is reviewing its financial health at the end of the fiscal year. The management team
is analyzing whether the value of the bank's assets, including loans and investments, is sufficient to
cover its liabilities, such as customer deposits and borrowed funds. What does the bank need to
ensure in order to remain financially stable?
Question 13:
Sarah is a loan officer at a bank, and she’s reviewing a loan application from a business looking to
borrow a substantial amount of money. After assessing the business’s financials, she notices that
while the business has a strong market presence, its recent cash flow has been inconsistent. Sarah is
concerned about the possibility of the borrower failing to make timely payments on the loan. What
financial risk is Sarah most concerned about when evaluating the likelihood that the borrower might
fail to make interest and principal payments on time?
Question 14:
Tom is the branch manager of a local bank. Recently, there has been a significant increase in
customer withdrawals, and the bank has several short-term obligations that are about to come due.
Tom is concerned that the bank may not have enough liquid assets to meet these demands without
affecting its financial health. What type of risk is Tom concerned about, which involves the
possibility that the bank may not be able to meet its depositor withdrawal demands or other
liabilities on time?
Question 15:
John is looking for financing options for his startup. He is considering two types of banks. One
offers savings accounts and certificates of deposit (CDs), accepting deposits from savers and using
those funds to lend money to businesses like his. The other specializes in helping companies like his
raise capital by selling new debt and equity securities to investors. Which type of bank would be
more helpful if he needs to raise funds by issuing stocks or bonds?
True/False Questions:
Question 1
Depository institutions include commercial banks, savings and loans, mutual savings banks, and
credit unions.
Question 2
Pension funds receive contributions from employees and/or their employers and invest the proceeds
on behalf of the employees.
Question 3
Investment banks accept deposits and makes loans to individuals and businesses.
Question 4
Credit unions are cooperative nonprofit organizations that exist primarily to provide member
depositors with consumer credit.
Question 5
Insurance companies sell shares in their firms to individuals and invest the pooled proceeds in
corporate and government securities.
Multiple choice questions:
Question 1
An organization that sells or markets new securities issued by businesses to individuals and
institutional investors is called a(n)
a. mutual fund
b. investment bank
c. insurance company
d. brokerage firm
Question 2
An organization that received contributions from employees and/or their employers and invests the
proceeds on behalf of the employees for use during their retirement years is called a(n)
a. mutual fund
b. savings bank
c. pension fund
d. retirement fund
Question 3
__________________ accept savings from individuals and then lend these pooled savings to
businesses, governments, and individuals.
a. Insurance companies
b. Commercial finance companies
c. Depository institutions
d. Investment banks
Question 4
Investment companies (mutual funds), investment banking firms, and brokerage firms are the
primary types of ____________.
a. banks
b. securities firms
c. pension funds
d. finance companies
Question 5
_______________ are cooperative nonprofit organizations that exist primarily to provide member
depositors with consumer credit, including the financing of automobiles and the purchase of homes,
and derive their funds almost entirely from the savings of their members.
a. Commercial banks
b. Thrift institutions
c. Savings banks
d. Credit unions
Question 6
_______________ sell or market new securities issued by businesses to individual and institutional
investors, whereas ______________ firms assist individuals who want to purchase new or existing
securities issues or who want to sell previously purchased securities.
a. Brokerage firms, investment banks
b. Investment banks, brokerage firms
c. savings banks, investment banks
d. Brokerage firms, savings banks
Question 7
Commercial banks obtain the bulk of their loanable funds from
a. depositors.
b. the issue of certificates of deposit.
c. sale of bank stock.
d. sale of subordinated debenture bonds.
Question 8
What is the primary sources of funds for insurance companies?
a. Individual savings
b. Premiums paid on policies
c. Employee/employer contributions
d. Other financial institutions
Question 9
What is the primary sources of funds for pension funds?
a. Individual savings
b. Premiums paid on policies
c. Employee/employer contributions
d. Other financial institutions
Question 10
Another name for an open-end investment company is a
a. brokerage firm.
b. finance company.
c. mutual fund.
d. investment bank.
