Exam (elaborations)
CQIB - CHAPTER 1 - BUSINESS OF BANKING
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CQIB - CHAPTER 1 - BUSINESS OF BANKING
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CQIB - CHAPTER 1 - BUSINESS OF BANKINGfinancial intermediation - Answers- The process of pooling funds from savers and using
these to provide loans to borrowers. The bank acts as a go between or intermediary for
those who have extra money and those who want to borrow.
Role of Banks - Answers- Acts as a financial intermediary between savers and
borrowers, which results in efficient use of pooled resources.
Facilitates the creation of money by expanding the supply of money through deposit and
loan transactions.
Creates financial products and services that benefits its customers.
Develops mechanisms for transferring money and making payments.
Contributes to the development of the economy
Investment Banking: what are Debt Capital Markets? - Answers- Large Company or
Government wants to raise capital by issuing bonds
An investment bank would be involved in planning the bond issuance, working with the
issuer to manage the documentation required to issue the bonds, and help sell the
bonds.
Investment banks need to establish information barriers within the organizations to
prevent exchanges or communication that could lead to conflict of interest.
Accepting Deposits: Banks source their funds largely from deposits from the public?
What are the 3 main types of public deposits - Answers- Savings deposits (from salary
and wage earners)
Fixed term deposits (lump sum deposited for a
specific period)
Current deposits (business accounts)
Granting Loans: List the types of bank loans and advances banks grant. - Answers-
Overdraft - An overdraft is a defined credit limit attached to a bank account that can be
drawn against. Interest is charged on the overdrawn balance.
Credit card - Credit cards allow the purchase of goods and services within a certain
limit, effectively borrowing money, and paying it back later, usually monthly or bi monthly
instalments.
, Short to medium term loans - Short term loans where principal and interest repayments
are made over a shorter time period of say, 12 months to 5 years (e.g., for purchase of
a car).
Long term loans - Long term loans where principal and interest repayments are made
over a longer period of say, 30 years (e.g., for purchase of a home)
Bills of exchange and promissory notes - Bills of exchange and promissory notes are
specialised instruments. being an unconditional order in writing between parties, where
the bank purchases the bill amount from the borrower, deducting charges. On maturity
the bill 1s presented to the borrower and the full amount is collected.
Equipment leasing and hire purchase - Equipment leasing and hire purchase are
common forms of borrowing for the financing of plant, machinery and vehicles by
individuals and businesses. Taxation benefits are often linked to these forms of debt,
making them popular funding options.
Trade finance - Trade finance assists in facilitating import and export transactions
including lending, letters of credit, factoring (accounts receivable financing), export
credit and insurance.
What type of loans have taxation benefits that make them a popular funding option. -
Answers- Equipment leasing and hire purchase
What are Bills of exchange and promissory notes - Answers- Bills of exchange and
promissory notes are specialised instruments. being an unconditional order in writing
between parties, where the bank purchases the bill amount from the borrower,
deducting charges. On maturity the bill 1s presented to the borrower and the full amount
is collected.
What is Trade finance? - Answers- Trade finance assists in facilitating import and
export transactions including lending, letters of credit, factoring (accounts receivable
financing), export credit and insurance.
The investment bank would buy the securities at one price and then add on a markup in
the sale price and thereby generate a profit that compensates for the risk they take on.
This difference is the underwriting spread. A lead bank will normally work with a group of
investment banks, called a syndicate, to underwrite an issue so that the risk is spread
among others.
Investment Banking: A group of investment banks is called? - Answers- Syndicate - A
lead bank will normally work with a group of investment banks, called a syndicate, to
underwrite an issue so that the risk is spread among others.
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