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CTP > Chapter 3 - Banks and Financial Institutions > Flashcards

Chapter 3 - Banks and Financial Institutions Flashcards

1
Q

Financial Action Task Force (FATF)

A

sets guidelines for KYC

makes recommendations on customer due diligence and each country determines how those obligations will be imposed

FIs are prohibited from holding anonymous accounts and are required to conduct due diligence on customers when opening accounts

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2
Q

FATF recommendations for due diligence

A

1) Identify a customer’s identity, using independent source documents, data or information for verification
2) Identify the beneficial account owner and understand the ownership and control structure of the customer for legal persons and arrangements
3) Understand and obtain information on the purpose and nature of the intended business relationship
4) conduct ongoing due diligence on the business relationship and transactions undertaken

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3
Q

Legal Lending Limit

A

the legal amount one FI is allowed to lend to one single customer (usually a percentage of their capital) 25% globally 15% US

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4
Q

Demand Deposit Accounts (DDAs) or Current Accounts

A

“Checking Accounts”

Provide a store of value and a vehicle to facilitate inter company funds transfers or payments made to vendors

interest bearing in many countries

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5
Q

Time Deposit Accounts (TDAs) or Noncurrent Accounts

A

Deposits maintained for a specified period of time, early withdrawal is allowed only with prior approval. e.g. CD, savings account, money market deposit accounts

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6
Q

Money Market Deposit Accounts (MMDA)

A

allow firms to earn competitive market rate of interest on cash balances

liquid but limited to 6 withdrawals a month

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7
Q

Bank Identification Code (BIC)

A

a unique identifier that specifies the FIs involved, most commonly used one is a SWIFT code

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8
Q

Society for Worldwide Inter bank Financial Telecommunications (SWIFT) - SWIFT Code

A

8 or 11 characters

1-4: bank code (alpha)
5-6: ISO 3166-1 alpha-2 country code (alpha)
7-8: Location code (alpha num)
9-11: branch code (optional)

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9
Q

International Bank Account Number (IBAN)

A

a way to identify bank accounts across national borders

adopted as an international standard by International Organization for Standardization (ISO)

34 alpha num characters

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10
Q

International Organization for Standardization (ISO)

A

adopted the IBAN numbers

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11
Q

Term Loan or Term Note

A

Type of short term business loan

a business borrows a specific amount to be repaid by a specific date

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12
Q

Revolving Line of Credit

A

type of short term business loan

a business can borrow up to a specified amount, repay all or part of the outstanding balance and borrow again in the future

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13
Q

Commercial Paper (CP)

A

a way for FIs to facilitate the acquisition of credit for corporate customers

consist of unsecured, discounted, short-term promissory notes issued by companies of the commercial bank holding companies

FIs typically act as the agents to place CP with investors

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14
Q

Trade Services Provided by FIs

A

Commercial Letter of Credit

Standby Letter of Credit

Documentary Collection

Banker’s Acceptance

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15
Q

Commercial Letter of Credit

A

Issued by Bank

Guarantees payment of a customer’s draft

specifies amount, period, and conditions to be met

bank substitutes its credit on behalf of customer

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16
Q

Standby Letter of Credit

A

Performance contract issued by bank

Ensures that certain terms and conditions will be met by bank’s customer

used when there is no tangible collateral to seize for nonpayment or non performance

17
Q

Banker’s Acceptance

A

Used primarily to finance international trade

Related to a letter of credit or documentary collection

Created when bank “accepts” payment responsibility for draft

negotiable instrument

18
Q

Fiduciary Services Provided to Corporate Customers include

A
  • Establishing and managing employee pension plans or benefit plans
  • acting as a corporate trustee for corporate bond or preferred stock issues
  • monitoring compliance with bond indenture agreements
  • acting as transfer agent by keeping records of each purchase and sale of stock
  • acting as a registrar by compiling and maintaining lists of current stock and bond holders
  • acting as paying agent
  • custody services
19
Q

Credit union

A

member owned, not for profit financial cooperative providing financial services

20
Q

National Credit Union Administration (NCUA)

A

charters and supervises federal credit unions

21
Q

Components of stock and bond issuance

A

Origination

Underwriting

Distribution

22
Q

Stock/Bond Issuance - Origination

A

I bank advises the issuer when to actually issue

23
Q

Stock/Bond Issuance - Underwriting

A

the act of purchasing all or part of a block of securities issued by a company

the I Bank is basically the intermediary between the issuer and the investing public

two types of underwriting:
Full Underwriting - bank owns the entire issue. issuer receives funds and the bank assumes the price and marketability risk associated with the issue

Best effort underwriting - bank assists issuer without taking the price and marketing risks. bank doesn’t issue it only helps with placement of the securities

24
Q

Stock/Bond Issuance - Price Risk

A

means it might not be possible to sell the entire security issue at the anticipated price

25
Q

Stock/Bond Issuance - Marketing Risk

A

the probability that not all shares will be sold

26
Q

Stock/Bond Issuance - Distribution

A

the actual sale of securities

27
Q

Sell Side

A

underwriting and distribution functions of an I Bank

28
Q

Buy Side

A

Investment advisory and management function of an I Bank

29
Q

Industrial Bank

A

sell certificates called investment shares and can also accept consumer deposits. they then lend the deposits out via installment loans to customers

no checking accounts

30
Q

Captive Bank

A

a type of industrial bank that is a subsidiary of a large industrial corporation and that finances purchases solely of that corporation’s products

many auto companies have these because they can extend credit to customers without putting themselves at risk

31
Q

Factors

A

non bank financial intermediary

provide short-term financing to companies by purchasing accounts receivable at a discount

32
Q

Asset Backed Lenders/Loans (ABL)

A

loans secured by collateral. amount of credit is based on quality of the collateral (usually inventory or AR)

33
Q

Documentary Collection

A

Processes the collection of draft and shipping documents through correspondent banks

collection letter accompanies documentation

Exporter is responsible for specific instructions in collection letter

CTP (8 decks)

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