Multiple Choice
Why is it generally considered a poor financial decision to simply hide money in a safe place rather than investing it in securities?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
How do banks primarily make money from investments in securities?
A
By earning interest and dividends from securities they hold
B
By printing new money for their customers
C
By charging customers a fee for every deposit
D
By only holding cash reserves and not investing in any assets
Verified step by step guidance1
Understand the role of banks in financial markets: Banks are financial intermediaries that manage funds and invest in various assets, including securities, to generate income.
Identify the types of income banks earn from securities: Banks primarily earn interest from debt securities (e.g., bonds) and dividends from equity securities (e.g., stocks) they hold.
Eliminate incorrect options: Banks do not print money for customers, as this is the role of central banks. Charging fees for deposits is not a primary income source related to securities, and holding only cash reserves without investing would not generate returns.
Focus on the correct mechanism: Banks invest in securities to earn returns, which is a key part of their profit-making strategy. This includes interest income from bonds and dividend income from stocks.
Conclude the reasoning: The correct answer is that banks primarily make money from investments in securities by earning interest and dividends from the securities they hold.
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