Which of the following is a depository institution?
A) A life insurance company
B) A mutual savings bank
C) A pension fund
D) A finance company
The Correct Answer and Explanation is :
The correct answer is B) A mutual savings bank.
Explanation:
A depository institution refers to a financial entity that is authorized to accept deposits from the public. These institutions play a critical role in the economy by providing a safe place for individuals and businesses to store their money, while also offering services such as loans and credit. There are different types of depository institutions, such as commercial banks, savings banks, and credit unions.
Let’s analyze each option:
- A) A life insurance company: Life insurance companies do not accept deposits. They primarily offer insurance policies, such as life insurance, to policyholders. While they may invest in various financial assets, their core function is risk management, not accepting deposits from the public.
- B) A mutual savings bank: This is a depository institution. Mutual savings banks are a type of savings bank that accepts deposits and provides loans, particularly focusing on savings accounts and mortgages. These banks are typically owned by their depositors, and they are regulated by banking authorities. They operate much like commercial banks, but they often focus on serving local communities.
- C) A pension fund: A pension fund is not a depository institution. Pension funds are investment vehicles used by employers to provide retirement benefits to employees. While they manage large sums of money, their purpose is to invest and manage assets for future retirement payouts, not to accept deposits.
- D) A finance company: Finance companies provide loans and credit but do not accept deposits. They typically lend money to consumers and businesses for various purposes, including buying cars or funding business ventures, but they are not depository institutions.
In conclusion, a mutual savings bank is the only correct choice as a depository institution because it accepts deposits and makes loans, fulfilling the primary functions of such institutions.
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Here is the illustration of a mutual savings bank building, designed to represent a depository institution. It showcases a traditional and welcoming atmosphere, perfect for conveying the idea of a safe place to deposit money.