1. Bank deposits and other liabilities Use the following categorization table to
ID: 1158681 • Letter: 1
Question
1. Bank deposits and other liabilities Use the following categorization table to identify transaction and nontransaction accounts Transaction Account Nontransaction Account NOW Accounts Certificates of Deposit, CD Demand Deposits Savings, or Passbook Accounts Money Market Deposit Accounts Mr. Lane had been a customer at the Worcester Five Cent Savings Dank in Massachusetts since 1957. In 1968, he s of the bank change to Consumers Savings Bank- What else did Mr. Lane discover about his bank at that time? aw the name O A new service that allows depositors to withdraw funds by telephone O A new type of a savings account that pay interest O The introduction of money market deposit accounts O A requirement to re-open saving accounts avery five yearsExplanation / Answer
Solution:
Transaction account: These are the checkable or deposit accounts, which can be directly used by the account owners/holders to make transactions. There is no restrictions on cash withdrawal, and thus, they have high liquidity.
Non-transaction Account: These are the accounts of which the account holder do not have a direct claim on using the deposited money, and are usually deposited for longer periods, and interest is earned. The deposited amount either might not be used at all for transaction payments (till the period of deposits), or there might be restrictions on it's usage limits.
As per the above definitions, among the accounts given in the table,
Transaction accounts: 1) NOW accounts: earn little interest, and can be used for transaction purpose
2) Demand deposits: withdrawals can be made as per account holders' demand immediately
Nom-transaction a/cs: 1) CDs: Notransactions/withdrawals can be made before maturityy, or a penalty is suffered; longer period deposits implies higher interest returns.
2) Savings a/cs: Transactions can be made, but there exist withdrawal limits; earn interests
3) MMD accounts: Accounts are checkable, but involve withdrawal limits; interest is earned
During that time, Mr. Lane must have discovered b) a new type of savings account that pay interests. (no explanation, just history!)
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