A bank's capital primarily serves which purpose?
Correct answer: A. Absorbing unexpected losses
- A. Absorbing unexpected losses
- B. Guaranteeing profits each year
- C. Replacing customer deposits
- D. Increasing currency circulation
Explanation
Bank capital acts as a cushion against unexpected losses and protects depositors and other creditors. It does not guarantee profits or replace the deposits accepted by the bank.
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About Finance and Banking Basics
Business finance covers capital requirements, sources of funds, budgeting, cash flow, investment decisions and basic financial statements and ratios. Banking includes commercial bank functions, deposits, loans, credit creation, interest and the role of a central bank, including its monetary policy and regulatory functions.
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