Question

Which of the following statements is FALSE?

A. Both credit cards and debit cards are financial innovation responses to changes in supply conditions.
B. A firm issuing credit cards earns income from loans it makes to credit card holders and from payments made by stores on credit card purchases.
C. Credit cards have become extremely popular that in addition to VISA and Mastercard, nonfinancial institutions such as General Motors and Walmart have entered into the credit card business.
D. Debit cards are a spin off from credit cards and purchases on debit cards is immediately deducted from the card holder's bank account, making it a higher cost in processing transactions.

Answer 1

The false statement is that debit cards are a higher cost in processing transactions than credit cards. Debit card transactions are typically less expensive to process because they draw directly from the user's bank account without involving credit.

Step-by-step explanation:

The statement that is FALSE is: "Debit cards are a spin-off from credit cards and purchases on debit cards are immediately deducted from the card holder's bank account, making it a higher cost in processing transactions." The reason this statement is false is because debit card transactions typically involve less processing cost than credit card transactions, as they do not involve extending and managing credit. Debit cards draw money directly from the user's bank account and do not require a loan from the issuing company, unlike credit cards which provide a short-term loan.

A firm issuing credit cards does indeed earn income from the loans it makes to cardholders as well as from payments made by stores on credit card purchases. Furthermore, the popularity of credit cards has indeed enticed nonfinancial institutions to venture into issuing their branded credit cards, such as General Motors and Walmart.