Raising Finance from Bank

Question 1

Banker’s acceptance facilities

Answer 1

• Bills of exchange

Legal obligation to make a payment when accepted –> Often used in foreign trade

Question 2

Bank/Customer relationship

Answer 2

1) Mortgagor (borrower) & Mortgagee (bank)

2) Receivable (bank) & Payable (customer)

Question 3

Principles of good lending

Answer 3

Guide bank decisions about whether or not to lend money

AKA Canons of Lending

Question 4

How does bank profit suffer when the borrower default

Answer 4

• Expected interest not earned
• Bad debt/ Irrecoverable
• Cost of administering the account increase
• Legal cost in chasing the debt

Question 5

Purpose of borrowing

Answer 5

Overdraft facility

–> Increase current asset
–> Reduce current liability

Question 6

Overdraft VS Revolving credit

Answer 6

Revolving credit has higher limit –> Bank provide only to large & well-established business

RCF is for an agreed period of time, Overdraft can be at any time

RCF Has interest on amount borrowed & commitment fee on facility

Question 7

Advantages of overdraft vs loan

Answer 7

• Only pay interest when overdrawn
• Flexibility to review overdraft facility (add,reduce)
• Do the same job as MT Loan

!! Repayable on demand

Question 8

Advantages of MT Loan

Answer 8

• Know exactly what the repayments, how much interest and when
• Ease planning/budgeting
• No need to worry bank reduce/withdraw (element of security/peace of mind)
• Carry a facility letter (setting out precise terms of agreement)

Question 9

Banks acts as a link between borrowers & saver

Answer 9

Financial intermediation

Question 10

Rights & duties of a banker

Answer 10

Rights :
1) Levy reasonable charges & commissions
2) Use customer’s money in a legal & morally acceptable way
3) To be repaid overdrawn balances on demand

Duties :
1) Honour customer’s cheques
2) Receive customers’ funds
3) Comply with customers’ instructions
4) Provide statements in a reasonable time