Accounting-Finance

Learning Materials For Accounting, Management , Finance And Economics.

Showing posts with label Banking. Show all posts
Showing posts with label Banking. Show all posts

Wednesday, August 7, 2013

Concept And Meaning Of Unit Banking

Banking , Business
Unit banking has one office. Generally, limited banking services are offered to customers by unit banking organization. Although unit banking organization has one banking office, it can spread cash counters in market place such as walk-in windows, automated teller machines, retail store point-of-sale terminals that are linked to the bank's computer system.

Unit banking is the oldest kind of banking organization most common in the world banking today. One reason for the comparatively large number of unit banks is the rapid formation of new banks. It can be established easily even in an age of electronic banking and mega mergers among industry leaders. Many customers still seem to prefer small banks, which get to know their customers well and often provide personalized services.

Most new banks start out as unit organization, because their capital, management and staffs are severely limited until the bank can grow and attract additional resources and professional staff. Later, they try to convert them into branch banking organization. However, economic and legal barriers to banks expanding geographically into new territory still exist in some places. Yet, most banks desire to create multiple service facilities-branch offices, electronic networks, and other service outlets. In competitive banking market, it is essential to open new markets and diversify geographically in order to lower risk and cost of banking services. If the surrounding economy weakens and people move away to other market areas, it becomes very risky in relying on a single office location, from which to receive customers and income.
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Tuesday, July 9, 2013

Services Offered By Modern Commercial Banks

Banking , Business
Generally, modern commercial banks offer following services to customers or public:

1. Accepting Deposit

Accepting deposit from savers or account holders is the primary function of bank. Banks accept deposit from those who can save money, but cannot utilize in profitable sectors. People prefer to deposit their savings in a bank because by doing so, they earn interest.

2. Advancing Of Loans

Banks are profit oriented business organizations. So they have to advance loan to public and generate interest from them as profit. After keeping certain cash reserves, banks provide short-term, medium-term and long-term loans to needy borrowers. 

3. Discounting Of Bill Of Exchange

Bill of exchange is a negotiable instrument, which is accepted by the debtor, drawn upon him/her by the creditor and agrees to pay the amount mentioned on maturity. Discounting bill of exchange is another function of modern commercial bank. Under this, banks purchase bill of exchange from holder in discount after making some marginal deduction in the form of commission. The banks pay the deducted value to the holders when traders discount it into bank.

4. Cheque Payment

Banks provide cheque pads to the account holders. Account holders can draw cheque upon bank to pay money. Banks pay for cheques of customers after formal verification and official procedures. .

5. Remittance

Remittance is a system, through which cash fund is transferred from one place to another. Banks provide the facilities of remittance to the customers and earn some service charge.

6. Collection And Payment Of Credit Instruments

In modern business, different types of credit instruments such as bill of exchange, promissory notes, cheques etc. are used. Banks deal with such instruments. Modern banks collect and pay different types of credit instruments as the representative of the customers.

7. Foreign Currency Exchange

Banks deal with foreign currencies. As the requirement of customers, banks exchange foreign currencies with local currencies, which is essential to settle down the dues in the international trade.

8. Consultancy

Modern commercial banks are large organizations. They can expand their function to consultancy business. In this function, banks hire financial, legal and market experts, who provide advice to customers in regarding investment, industry, trade, income, tax etc.

9. Bank Guarantee

Customers are provided the facility of bank guarantee by modern commercial banks. When customers have to deposit certain fund in governmental offices or courts for specific purpose, bank can present itself as the guarantee for the customer, instead of depositing fund by customers.
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Thursday, July 4, 2013

Concept And Meaning Of Bank

Banking , Business
A bank is financial institution, which deals with money and credit. Bank accepts deposits from the public and mobilizes the fund to productive sectors. Bank also provides remittance facility to transfer money from one place to another. Generally, bank accepts deposits from business institutions and individuals , which is mobilized into productive sectors mainly business and consumer lending. So bank is also called a dealer of money. At present context, a bank may engaged in different types of functions such as remittance, exchange currency, joint venture, underwriting, bank guarantee, discounting bills etc. The modern bank refers to an institution having the following characteristics:

* Bank deals with money: it accepts deposits and advances loans.
* Bank also deals with credit: it has the ability to create credit by expanding its liabilities.
* Bank is commercial institution: it aims at earning profit.

Banks are the principal source of credit for millions of individuals and families and for many units of government. They are among the most important financial institutions in the economy. Moreover, for small local businesses to large dealers, banks are often the major source of credit to stock the shelves with merchandise. Banks grand more installment loans to consumer than any other financial institutions.

Banks are among the leading buyers of bonds and notes issued by government to finance public facilities, ranging from hospitals and football stadiums to airports and highways. Moreover, bank reserves are the principal channel for government economic policy to stabilize the economy.

Banks are the important sources of short-term working capital for businesses. They have become increasingly active in recent years in making long-term business loans for new plants and equipment. When businesses and consumers must make payments for purchase of goods and services, more often they use bank provided cheques, debit or credit cards, or electronic accounts connected to a computer network.

Bank is a intermediary which accepts deposits and grants loans. It offers widest menu of services of any financial institution. In fact, a modern bank performs such a variety of functions that it is difficult to give a precise and general definition of a bank.
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Friday, January 4, 2013

Concept Of Investment Bankers And Their Functions

Banking , Business
Concept Of Investment Bankers

Investment bankers are financial middlemen in security offering process. They purchase securities from companies and governments and resell them to the general public. Thus, investment bankers bring together suppliers and users of long-term funds in a capital market and there by play a key role in security offering process. It is to be noted that investment bankers are neither investors nor bankers. They do not invest their own funds permanently nor accept and guard the savings of others, as commercial banks do.

Functions Of Investment Bankers

The traditional function of the investment bankers has been to act as middlemen in channeling individual's savings and funds into the purchase of business securities. But now a days, they also provide advice and help in distribution of securities. Thus, investment bankers perform four basic functions as follows:

1. Underwriting

When underwriting a security issue, an investment banker guarantees the issuer that it will receive a specific amount from the issue. In this process, investment banker buys the security at a lower price and then sells them at a higher price i.e. offer price to public. In this sense, underwriting is the insurance function of bearing the risks of adverse price fluctuation during the period of distribution. Investment bankers take this risk for a specific amount of underwriting spread or commission. If investment banker can not sell securities at specified price, the underwriter, not the company, suffers the loss. Underwriter's gain or loss is computed using the following equation.

Gain or loss to underwriter = Gross proceed- proceed to the company- underwriter's expenses.
Where, 
Gross proceed = price to public X number of shares to be issued.

2. Distributing

Once the investment banker owns new securities. it must get them into the hands of ultimate investors. Hence, the second function of investment banker is marketing new issue of securities. The investment banker is a specialist with a staff and organization to distribute securities. So, they perform physical distribution functions more efficiently and more economically than and individual company.

3. Advising

The investment banker, through experience becomes an expert in the issuance and marketing of new securities. Business firms may take valuable advice and counsel from the investment bankers. Thus, investment bankers perform an advisory function by analyzing the firm's financial needs and recommending appropriate means of financing.

4. Making A Market

In case of a company going public for the first time, the investment banker may be obliged to maintain a market for the shares after the issue. The investment banker generally agrees to make a market in the stock and to keep it reasonably liquid. In making a market, the underwriter maintains an inventory in the stocks, quotes bid and asked prices, and stands ready to buy and sell it at those prices. Thus, investment banker also helps to maintain an active secondary market in the stock of small and newly established company.
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Thursday, December 27, 2012

Classification Or Types Of Financial Institutions

Banking , Business
In financial market there are many types of financial institutions or intermediaries exist for the flow of funds. Some of them involve in depositary type of transactions whereas other involve in non-depositary type of transactions. The type of financial institutions can be divided into two types as follows:

1. Depository Institutions

The depository types of financial institutions include banks, credit unions, saving and loan associations and mutual saving banks

* Commercial banks

Commercial banks are those financial institutions, which help in pooling the savings of surplus units and arrange their productive uses. They basically accepts the deposits from individuals and institutions, which are repayable on demand. These deposits from individuals and institutions are invested to satisfy the short-term financing requirement of business and industry.

* Credit Unions

Credit unions are cooperative associations where large numbers of people are voluntarily associated for savings and borrowing purposes. These individuals are the members of credit unions as they make share investment along with deposits. The saving generated from these members are used to lend the members of the union only.

* Saving And Loan Associations

Saving and loan associations are the financial institutions involved in collecting funds of many small savers and lending these funds to home buyers and other types of borrowers.

* Mutual Saving Banks

Mutual saving banks are more or less similar to saving and loan associations. They primarily accepts savings of individuals and they are lent to the home users and consumers on a long-term basis.

2. Non-depository Institutions

Non-depository types of financial institutions are not banks in real sense. They make contractual arrangement and investment in securities to satisfy the needs and preferences of investors. The non-depository institutions include insurance companies, pension funds, finance companies and mutual funds.

* Insurance Companies

Insurance companies are the contractual saving institutions which collect periodic premium from insured party and in return agree to compensate against the risk of loss of life and properties. 

* Pension/Provident Funds

Pension funds are financial institutions which accept saving to provide pension and other kinds of retirement benefits to the employees of government units and other corporations. Pension funds are basically funded by corporation and government units for their employees, which make a periodic deposit to the pension fund and the fund provides benefits to associated employees on the retirement. The pension funds basically invest in stocks, bonds and other type of long-term securities including real estate. 

* Finance Companies

Finance companies are the types of financial institutions that engage in satisfying individual credit needs, and perform merchant banking functions. In other words, finance companies are non-bank financial institutions that tend to meet various kinds of consumer credit needs. They involve in leasing, project financing, housing and other kind of real estate financing.

* Mutual Funds

Mutual funds are open-end investment companies. They are the associations or trusts of public members and invest in financial instruments or assets of the business sector or corporate sector for the mutual benefit of its members. Mutual funds are basically a large public portfolio that accepts funds from members and then use these funds to buy common stocks, preferred stocks, bonds and other short-term debt instruments issued by government and corporation. 

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