Banks charge customers fees of up to $40 per cheque for writing "bounced" cheques; that is, cheques that exceed the balance in the account. It has been estimated that processing bounced cheques costs a bank roughly $5 per cheque. Thus, the profit margin on a bounced cheque is very high. Some banks process cheques from largest amount to smallest. By doing this, they maximize the number of cheques that bounce if a customer overdraws an account.
Instructions
(a) Who are the stakeholders in this situation?
(b) Antonio Freeman had a balance of $1,200 in his chequing account on a day when the bank received the following five cheques for processing against his account:

Assuming a $35 fee per cheque is assessed by the bank, how much fee revenue would the bank generate if it processed cheques
(1) From largest to smallest,
(2) From smallest to largest, and
(3) In the order of the cheque numbers?
(c) Do you think that processing NSF cheques from largest to smallest is an ethical business practice for a bank?
(d) Besides ethical issues, what else should a bank consider when it decides if it should process cheques from largest to smallest?
(e) If you were managing a bank, what would be your policy on bounced cheques?

Transcribed Image Text:

Amount S 35 1,175 400 Cheque Number 3165 3169 Amount $550 Cheque Number 3150 B1 3162 180