Chapter 24: Bank products/Services for large enterprises/corporations

Question 1

Large enterprises & corporations

Answer 1

Serves medium to large enterprises
* Service in and outside local market
* Often need more specialized services/customization
* Most common services are cash management advice, call money and call deposits, money market paper and money market funds

Question 2

Cash management

Answer 2

Planning/management of cash flow for efficiency and profit:
* Balance management: incoming/outgoing payments and surplus/deficit
* Liquidity management: management of liquid positions that exist between a few days to a year to generate returns
* Cash flow management: all payment activities to minimize costs and improve efficiency

Question 3

Call money and call deposits

Answer 3

Call money: A loan with an indefinite period which can be cancelled by either party daily

Call deposit: deposits with a 1-day term, settled the following day. Only used for very large amounts since difference in IRs will outweigh the transaction

Question 4

Money Market paper

Answer 4

Money market paper is a tradable acknowledgement of debt with max term of 2 years (e.g. a short-term bond).

Types:
* Commercial Paper: Issuer of debt is a commercial enterprise/institution
* Certificates of deposit: Issuer is a commercial bank
* European Bank certificates: ECB is the issuer
* Dutch Treasury Certificates: Short term debt instruments of less than one year by Dutch state

Question 5

Issuance of money market paper

Answer 5

Company needs bank to help issue.
* Must specify amount, term and interest
* Bank acts as arranger of the commercial paper program and create prospectus
* Bank acts as broker to find investors on the relevant money market

Question 6

Negotiability or tradability of money market paper

Answer 6

• Money market paper can be traded, but not a big secondary market bc not traded on an exchange

Question 7

Money market funds

Answer 7

Investment funds that invest in money market paper and deposits

Investment funds = capital that is collected to inest in different types of securities by a fund manager.

Advantages
* Money can be withdrawn at any time
* Spread accross several parties - likelihood of bankrupcy is low