Week7-9 Flashcards
may differ in the type and number of services they provide to customers but many of their “core” services are the same.
Financial institutions
are an internal part of the world of business.
Banks and financial institutions
Current, savings and term deposit accounts would involve account opening, issue of cheques, nomination facilities, death claims, stop payment instructions, payment of periodical interest, introduction formalities and so on.
Deposit Facilities
Banks are known to extend a variety of credit facilities such as term loans, cash credit, bills discounting, vehicles loans, agriculture loans, corporate credit, retail loans, guarantees and letters of credit, and a host of such other need-based facilities.
Credit Facilities
transfer of funds from one account to the
other, from one city to the other, payment of bills, collection of cheques and bills, an ailment of modem payments systems such as Real-Time Gross Settlement (RTGS) Electronic Clearing Service (ECS), National Electronic Funds Transfer (NEFT), and
Society for Worldwide Interbank Financial Transfers (SWIFT) and so on.
Remittances and Payments
Banks provide not only various domestic banking facilities, but also international banking services. Export and import credit, foreign letters of credit, cross country payments, currency exchange, remittance from abroad and such other services are provided to individuals as well as business entities.
Export, Import and Foreign Exchange Facilities
These include providing personal banking, asset management, executor and trusteeship arrangements and such other services
Investment Banking and Wealth Management-
Banks also provide a very wide range of auxiliary or subsidiary services such as safe custody and safe deposit locker facilities, solvency certificates, insurance and mutual fund services, credit and debit cards, and sale of gold coins.
Auxiliary Services
exists in an interest-bearing asset, such as a loan or a bond, due to the possibility of a change in the assets value resulting from the variability of interest rates.
Interest Rate Risk
has become very important, and assorted instruments have been developed to deal with interest rate risk.
Interest rate risk management
is the risk that arises when the absolute level of interest rates fluctuate. Interest rate risk directly affects the values of fixed-income securities.
Interest rate risk
specifically those who invest in long-term fixed-rate bonds, are more directly susceptible to interest rate risk.
Bond investors
is the most basic interest rate management product. The idea is simple, and many other products discussed in this article are based on this idea of an agreement today for an exchange of something at a specific future date.
Forward Contract
is based on the idea of a forward contract, where the determinant of gain or loss is an interest rate.
Forward Rate Agreement
is similar to a forward, but it provides the counter parties with less risk than a forward contract namely, a lessening of default and liquidity risk due to the inclusion of an intermediary.
Future Contract
