Only Question 12

Banks charge fees for "bounced" checks - that is. checks that exceed the balance in the account. It has been estimated that processing bounced checks costs a bank roughly $1.50 per check. Thus, the profit margin on bounced checks is very high. Recognizing this, some banks have started to process checks from largest to millest: By doing this, they maximize the number of checks that bounce if a customer. overdraws an account. For example, NationsBank (now Bank of America) projected a $14 million increase in fee revenue as a result of processing largest checks first. in response to criticism, banks have responded that their castomers prefer to have large checks processed first, because those tend to be the most important. At the other extreme, some banks will cover their customers bounced checks, effectively extending them an interest-free loan while their account is overdrawn. Question 11 (1 point) \& sawed John Smith had a balance of $1,500 in his checking account at First National Bank on a day when the bank received the following five checks for processing against his account. Check Number 3150 for $35 Check Number 3162 for $400 Check Number 3165 for $550 Check Number 3166 for $1,510 Check Number 3169 for $180 Assuming a $30 fee assessed by the bank for each bounced check, how much fee revenue would the bank generate if it processed checks (1) from targest to smallest. (2) from smallest to largest and (3) in order of check number? 1) $150,2)$30,3)$60 1) $30,2)$30,3)$0 1) $30,21$60,3)$150 1) $150,2)$150,3)$150 Question 12 (1 point) ssved Is processing checks from largest to smallest an ethical business practice? No, the bank should process checks from smallest to largest to save the customer's money No, this practice violates SEC rules Yes, this practice is not illegal and the responsibility of management is to maximize revenue which can only be achieved by processing checks largest to smallest While this practice is legal, the bank should determine it the practice may cause some customers to use an altemative bank, thereby reducing net income in the long run