Senior Secondary (HKDSE) · Economics

Banks: functions and services: Practice Questions

5 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Banks: functions and services.

10 questions27 marksFree, no account

Question 1

1 mark

In Hong Kong, a financial institution is allowed to accept deposits of any amount and any maturity period from the public. According to the three-tier banking system, this institution is most likely a:

Question 2

1 mark

Under Hong Kong's Currency Board System, the mechanism by which newly issued Hong Kong dollar banknotes are backed is best described as:

Question 3

1 mark

Which statement accurately describes a key difference between Licensed Banks and Deposit-Taking Companies (DTCs) in Hong Kong?

Question 4

1 mark

Which of the following describes the most fundamental role of commercial banks in facilitating economic activity?

Question 5

1 mark

In the midst of a sudden and widespread loss of public confidence, depositors in Hong Kong start withdrawing large sums of cash from several major licensed banks simultaneously. This rapid outflow of funds leaves these banks with a severe liquidity shortage, jeopardizing their ability to meet immediate obligations. Considering the institutional framework in Hong Kong, which of the following actions represents the most direct and immediate function of the central banking authority to address this crisis?

Question 6

4 marks

Distinguish between a Licensed Bank and a Deposit-taking Company in Hong Kong based on the types of deposits they can accept.

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Question 7

5 marks

Under the three-tier banking system in Hong Kong, explain why a Deposit-taking Company (DTC) is legally prohibited from accepting a deposit of $\$400,000$ with a maturity of two months, and identify the specific tier of the banking system that is permitted to provide this service while serving the objective of protecting small depositors.

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Question 8

3 marks

What is the primary role of commercial banks in facilitating economic growth?

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Question 9

4 marks

In Hong Kong, the Hong Kong Monetary Authority (HKMA) performs several functions typically associated with a central bank.

(a) Identify and describe two central banking functions performed by the HKMA.

(b) Explain how the HKMA's role as a note-issuing authority contributes to the stability of the Hong Kong financial system under the Currency Board System.

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Question 10

6 marks

Hong Kong's financial system includes Licensed Banks, Restricted Licence Banks, and Deposit-taking Companies. These institutions have distinct features.

(a) Outline the main difference in deposit-taking activities between a Licensed Bank and a Deposit-taking Company.

(b) Explain two reasons why the Hong Kong Monetary Authority (HKMA) differentiates between these types of institutions in terms of regulatory requirements.

(c) Suggest one advantage for a financial institution to operate as a Licensed Bank compared to a Restricted Licence Bank.

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