Lesson 4.2.4.2

4.2.4.2 Commercial banks and investment banks Quiz: AQA Economics, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 4.2.4.2, Commercial banks and investment banks: 20 multiple choice questions for the AQA Economics (7136), Unit 2: The national and international economy, written with Revision Ninja.

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The 20 questions

  1. What is a core function of a commercial bank?

    • Advising on mergers
    • Underwriting share issues
    • Accepting customer deposits
    • Issuing government bonds

  2. Which service is typically provided by an investment bank?

    • Accepting retail deposits
    • Underwriting share issues
    • Issuing debit cards
    • Providing overdraft facilities

  3. Which three factors represent the primary objectives of a commercial bank?

    • Revenue, regulation, reserves
    • Efficiency, equality, solvency
    • Liquidity, profitability, security
    • Inflation, growth, equity

  4. What does liquidity measure for a commercial bank?

    • Total profit margin
    • Overall interest rate
    • Cash conversion speed
    • Long-term lending capacity

  5. Which item is recorded as a liability on a commercial bank's balance sheet?

    • Mortgages granted
    • Customer deposits
    • Personal loans
    • Cash reserves

  6. Holding highly liquid assets instead of long-term loans reduces a bank's what?

    • Security
    • Liabilities
    • Profitability
    • Liquidity

  7. How do commercial banks create credit in the economy?

    • By collecting taxes
    • By minting coins
    • By printing banknotes
    • By granting loans

  8. A bank has deposits of 1000 million pounds and holds 100 million pounds of liquid reserves. What is its liquidity ratio?

    • 1 per cent
    • 100 per cent
    • 0.1 per cent
    • 10 per cent

  9. Increasing long-term lending without raising cash reserves directly reduces a bank's what?

    • Liquidity
    • Total deposits
    • Liabilities
    • Credit creation

  10. Raising interest rates paid on deposits will directly cause a bank's profit margin to do what?

    • Decrease
    • Remain unchanged
    • Increase
    • Double

  11. Why does a commercial bank issuing a £10,000 loan increase the broad money supply?

    • It lowers equity
    • It destroys liabilities
    • It reduces reserves
    • It creates deposits

  12. Combining commercial and investment banking increases systemic risk because investment losses threaten what?

    • Retail deposits
    • Tax revenues
    • Government spending
    • Foreign exchange reserves

  13. A bank prioritizing security aims primarily to prevent what?

    • Insolvency
    • Hyperinflation
    • Tax evasion
    • Liquidity surplus

  14. What is a key primary function of an investment bank?

    • Accepting retail deposits
    • Underwriting share issues
    • Providing personal overdrafts
    • Issuing paper currency

  15. Holding long-term bonds instead of cash increases a bank's profitability at the expense of what?

    • Security
    • Liquidity
    • Credit creation
    • Solvency

  16. Which objective must a commercial bank sacrifice if it chooses to hold all its assets as cash?

    • Security
    • Solvency
    • Profitability
    • Liquidity

  17. Pursuing higher returns by issuing riskier loans primarily reduces which commercial bank objective?

    • Profitability
    • Credit creation
    • Market share
    • Security

  18. What risk is created when a bank funds long-term illiquid assets with short-term deposits?

    • Exchange rate risk
    • Credit risk
    • Inflation risk
    • Liquidity risk

  19. Which item is listed on the liabilities side of a commercial bank's balance sheet?

    • Commercial loans
    • Corporate bonds
    • Cash reserves
    • Customer deposits

  20. Why must a commercial bank hold a proportion of its assets in liquid form?

    • To maximise interest
    • To underwrite shares
    • To meet withdrawals
    • To eliminate inflation

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