The objectives of a commercial bank: liquidity, profitability and security
Commercial banks pursue three goals at once: staying liquid enough to meet withdrawals, earning profit on loans, and keeping their lending safe from default.
Formula
Liquidity ratio = Liquid assets ÷ Total assets × 100
Real World
Northern Rock in 2007 prioritised profitability by funding long-term mortgages with short-term borrowing, but when wholesale markets froze it could not meet withdrawals — demonstrating how neglecting liquidity destroyed an otherwise profitable bank.
Exam Focus
Use Northern Rock as a case study to illustrate liquidity failure; 'analyse' questions require you to show the mechanism, not just name the objective.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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