There was a man who made a living selling balloons at a fair. He had all colors of balloons, including red, yellow, blue, and green. Whenever business was slow, he would release a helium-filled balloon into the air and when the children saw it go up, they all wanted to buy one. They would come up to him, buy a balloon, and his sales would go up again. He continued this process all day. One day, he felt someone tugging at his jacket. He turned around and saw a little boy who asked, "If you release a black balloon, would that also fly?" Moved by the boy's concern, the man replied with empathy, "Son, it is not the color of the balloon, it is what is inside that makes it go up." The same thing applies to our lives. It is what is inside that counts. The thing inside of us that makes us go up is our attitude. Have you ever wondered why some individuals, organizations, or countries are more successful than others? It is not a secret. These people simply think and act more effectively. They have learned how to do so by investing in the most valuable asset--people. I believe that the success of an individual, organization or country, depends on the quality of their people. I have spoken to executives in major corporations all over the world and asked one question: "If you had a magic wand and there was one thing you would want changed, that would give you a cutting edge in the marketplace resulting in increased productivity and profits, what would that be?" The answer was unanimous. They all said that if people had better attitudes, they'd be better team players, and it'd cut down waste, improve loyalty and, in general, make their company a great place to work. William James of Harvard University said, "The greatest discovery of my generation is that human beings can alter their lives by altering their attitudes of mind." Experience has shown that human resources is the most valuable asset of any business. It is more valuable than capital or equipment. Unfortunately, it is also the most wasted. People can be your biggest asset or your biggest liability. TQP--TOTAL QUALITY PEOPLE Having been exposed to a number of training programs, such as customer service, selling skills, and strategic planning, I have come to the conclusion that all these are great programs with one major challenge: None of them works unless they have the right foundation, and the right foundation is TQP. What is TQP? TQP is Total Quality People-- people with character, integrity, good values, and a positive attitude. Don't get me wrong. You do need all the other programs, but they will only work when you have the right foundation, and the foundation is TQP. For example, some customer service programs teach participants to say "please," and "thank-you," give smiles and handshakes. But how long can a person keep on a fake smile if he does not have the desire to serve? Besides, people can see through him. And if the smile is not sincere, it is irritating. My point is, there has to be sub

1. Fundamentals of Financial Services
Banking
Fundamentals of Financial Services

2. Banking: Key Topic Areas
 Retail and Commercial Banking
 Retail Borrowing in Focus
 Interest Rates
 Secured and Unsecured Borrowing
 The Relative Cost of Borrowing
 Investment Banks
 Central Banks

3. RETAIL & COMMERCIAL BANKING
RETAIL BORROWING IN FOCUS

4. Lesson Objectives
By the end of the lesson:
1. Everyone MUST be able to:
• Explain the difference between the role of retail banks and
commercial banks
• List and define 5 types of retail borrowing available to retail
customers
2. Most SHOULD be able to explain the features of each of these
retail borrowing methods
3. Some COULD be able to analyse the advantages and
disadvantages to the customer of these retail borrowing methods

5. Retail Bank vs. Commercial Bank
RETAIL
• Individuals are retail customers.
• Banks that provide these
customers with services are
known as retail banks.
• The purpose of the bank is to
attract deposits from savers and
lend to borrowers.
COMMERCIAL
• This term is mainly used in the
US.
• In the US it encompasses all
banks that engage in attracting
deposit and giving out loans.
• In other countries “commercial”
bank may refer solely to banks
who provide such services to
businesses only (not individuals).
• This is also known as corporate
banking, since the bank is mainly
dealing with corporate entities.
What other expenses may a retail
bank have to pay for before it can
determine its level of surplus?
Do you remember how a bank
generates a surplus?

6. Retail Bank vs. Commercial Bank
Commercial Banks
The US definition – all banks that
take deposits and grant loans
Retail Banks
Banks that specialise in taking
deposits and providing loans to
individuals
Corporate Banks
Banks that specialise in taking
deposits and providing loans to
businesses. In parts of the world
outside the US, these are often
referred to as commercial banks.

7. Key Features: Bank Loan
• What does each method actually mean?
• What are the FEATURES of each method?
• What are the advantages/disadvantages
of each method?
A loan provided to a borrower
where the lender takes no security.
• For a set period that is generally less than five
years.
• At a set rate of interest.
• With a defined repayment schedule.
A form of debt where a borrower receives a certain amount from a lender, in this case a
bank. The borrower agrees to pay a contracted rate of interest to the lender and also
agrees a date on which the loan will be repaid.
Add notes to your A3 sheet

8. Key Features: Mortgage
• What does each method actually mean?
• What are the FEATURES of each method?
• What are the advantages/disadvantages
of each method?
The situation where a lender takes
something of value as security for a loan.
If the borrower fails to repay the debt, the
lender is able to keep and sell the item.
A mortgage loan is a long-term loan used to finance the purchase of real estate (e.g. a house). Under
the Mortgage Agreement, the borrower agrees to make a series of payments back to the lender. The
money lent by the bank (or building society) is secured against the value of the property: if the
payments are not made by the borrower, the lender can take back the property.
• For a set period (usually 25 – 35 years)
• At a variable rate of interest (it increases or decreases
to stay in line with the general interest rates)
• With a defined repayment schedule (e.g. monthly)
• Secured on the property the loan is used to buy
Add notes to your A3 sheet

9. Key Features: Overdraft
• What does each method actually mean?
• What are the FEATURES of each method?
• What are the advantages/disadvantages
of each method?
A form of borrowing from a bank where the lending bank can demand repayment at any
time.
• Flexible – able to be drawn, repaid, drawn
again up to the overdraft limit.
• At a variable rate of interest.
• An arrangement fee may also be payable.
• Unsecured and repayable on demand.
Add notes to your A3 sheet

10. Credit Cards Activity
Visit the American Express Website.
https://www.americanexpress.com/uk/content/all-cards/
Select one of their range of credit cards available.
Complete the following:
1. What is the name of the card?
2. What is its annual fee?
3. What are the charges for using the credit card facility?
4. What additional “rewards” are available for the user?
5. What is the eligibility criteria?
6. Which sort of borrower would go for this type of card?
Based on this research, discuss the following in your groups:
• How do you think a credit card actually works?
• What do you think the advantages/disadvantages of using a credit card are for the borrower?
• What do you think the advantages/disadvantages of issuing a credit card are for American
Express?
Add notes to your A3 sheet

11. Credit Cards
Credit cards are available from banks as well as
specialist providers like Visa and MasterCard and even
through supermarkets, football clubs and charities.
• Flexible – able to be used up to the credit limit
• At a variable rate of interest, which tends to be expensive
• Repayments of at least a minimum amount are required monthly
An individual
applies for a
credit card, and
if successful, is
granted a card
with a certain
borrowing limit.
This is known as
the credit limit.
The individual
can make
purchases with
the card and
with each
transaction the
borrowed
amount
increases.
The borrowed
amount that is
not paid off,
incurs a high
interest charge,
e.g. 20% per
annum.
At least part of
the borrowed
money needs to
be repaid
monthly.
It is best to pay
off the WHOLE
AMOUNT
borrowed each
month.
Add notes to your A3 sheet

12. Look at the picture.
What do you think it is about?

13. Pawnbrokers
A pawnbroker is a business that provides loans to
individuals. The pawnbroker takes an item of security
(such as jewellery) in exchange for the loan. The loan
needs to be repaid for the borrower to reclaim the item.
The item pawned
must hold monetary
value.
The item pawned
might hold
sentimental value
e.g. a wedding ring
It is a secured loan,
as the pawnbroker
can keep the item if
the loan is not
returned on time or
in full.
The decision is usually made
immediately by the
pawnbroker on whether the
loan will be issued or not.
Borrowers can avoid a lengthy
approval process compared to
other methods such as
overdraft or credit card.
Add notes to your A3 sheet

14. Pawnbrokers
Why do you think that a loan from a pawnbroker is
more expensive than a loan or overdraft from the
bank, or borrowing on a credit card?
This is due to the RISK taken on by
the pawnbroker, combined with the
DESPERATION of the borrower.
The pawnbroker knows little about the
borrower. They may never return the money.
This is a BIG risk for the pawnbroker.
The borrower is obviously very desperate.
Needs the money immediately, and cannot
find it easily elsewhere., and therefore forced
to pay a higher rate of interest
Add notes to your A3 sheet

15. H&T Pawnbrokers
Click on image to access the website
The offer:
• Loans by H&T can be offered from
£250-£50,000 over a period of 6
months.
• Interest will be charged dependent on
amount borrowed.
• No penalties for early repayment
The process:
• Fair & accurate offer based on
estimating the asset the borrower
wishes to pawn.
• No income checks performed –
loan is issued purely on the value of
the item
• All items are secured and insured
during the period of the loan
Add notes to your A3 sheet

16. Activity…
• Watch the advert twice.
• First time jot down:
– What is being advertised?
– What does the consumer
say is being offered?
• Second time jot down:
– The rate of interest being
charged.
– Any other conditions
outlined in the “small print”
you can see
Click on image to access the video

17. Payday Loans
A pay day loan is marketed as a loan that enables
a borrower to get hold of cash before the next
time they are paid by their employer.
It is a very short term loan
It needs to be repaid on the
borrower’s next payday –
usually by the end of the
month
Such loans are often very
expensive.
There are numerous websites which compare payday loans available to
consumers. Visit: http://paydayloans.money.co.uk/ to compare Loan
amounts available; rates offered and repayment terms.

18. Payday Loans: Are they worth it?
• BBC Monthly Interest Calculator is available here.
• An example has been shown below.
• There is an option to “play” and see to see how the interest would go up if you kept
refinancing each month.

19. Stretch & Challenge: Articles Research
• http://www.theguardian.com/money/payday-loans
• The Guardian dedicates a whole area to payday loans
under its “Money” section.
• Pick out two interesting news stories that discuss some
of the issues associated with the payday loans industry.
• Summarise the articles to present back to the class.
• Each article should be summarised into 6-10 sentences
including the following:
– Headline, date, author, website/newspaper
– What is the main message of the article?
– Reference to any evidence/examples given

20. Stretch & Challenge: Payday Loans Market
Visit the web link below and do some research of
your own to answer the questions below:
– http://www.consumeraffairs.org.uk/loans/payday-
loan/guides/payday-loan-market-uk-compares-nations
• How does the UK payday loan market compare to
that of other nations?
• Is there a future for payday loan businesses to
continue trading in the future?

21. A Question of Ethics?
Many individuals have been caught in the
deepening debt spiral which comes with over
reliance on credit.
The BBC documentary explores: “The Truth
Behind Payday Loans”.
• What are the ethical considerations which
have clearly been ignored by the big
payday lenders?
• Whose responsibility is it to limit the
borrowing:
– The individual?
– The Payday Lender?
– The Government?
• Is there a case to cap the cost of credit?
Click on image to access the video

22. Pawnbrokers & Payday Loans
• Easily available as the decision tends to be made immediately
• Relatively very expensive compared to other forms of
borrowing
• Repayment is required to regain possession of the pawned
item from the pawnbroker
• Payday loans are very short term, with repayment required at
the next payday

23. Plenary: Quick Quiz
1. What is the difference between a retail bank and a
corporate bank?
2. What are the 5 methods of borrowing available for
retail consumers?
3. List three features of each method of borrowing.
4. Identify one advantage and one disadvantage of
each method of borrowing.

24. Plenary
Have you met your
learning outcomes?
Check your learning.
Use the assessment
sheet provided.

25. Payday Loans: Links & Articles
Comparison of Payday Loans:
• http://paydayloans.money.co.uk/
Guides on Payday Loans:
• http://paydayloans.money.co.uk/guides.htm
Lots of relevant articles on Payday Loans
• http://www.theguardian.com/money/payday-loans
What is the future for payday loans?
• https://www.stackingbenjamins.com/future-payday-loans/
The Demise of the Payday Loan?
• http://www.huffingtonpost.co.uk/sarah-willingham/payday-loans-uk_b_6139356.html
Key changes for payday lenders
• http://paydayloans.money.co.uk/payday-loans-the-new-rules-for-lenders.htm
How sky high bank overdraft charges force borrowers to use payday lenders
• http://www.thisismoney.co.uk/money/saving/article-2270230/How-sky-high-bank-overdraft-charges-force-
borrowers-use-payday-lenders.html
Further articles and useful links to follow and read up on !

26. INTEREST RATES

27. Learning Outcomes
By the end of this session:
Everyone MUST
1. Know the difference between the quoted interest rate on
borrowing and the effective annual rate of borrowing.
• Be able to calculate the effective annual rate of given the quoted rate
and frequency of interest payments.
• Know the difference between secured and unsecured borrowing.
2. Know that investment banks help companies to raise money and
advise them on strategy, E.g. mergers and acquisitions
3. Know the role of central banks

28. What are interest rates?
The COST of borrowing.
The REWARD for saving.
The price paid for borrowing money. Generally,
interest is expressed as a percentage rate over a
period, such as 5% per annum.

29. Interest Rates
• This is normally the advertised or quoted
rate.
• By law lenders have to show this rate to
customers.
• It is used so that customers can easily
compare financial products.
• APR shows the cost of borrowing if
interest is charged on an annual basis.
• Takes the APR (or quoted rate) and
adjusts it to take into account the
frequency of interest charges.
• Often, interest is not charged once a year
but on a quarterly or monthly basis
• The EAR is higher than the quoted rate
(APR)

30. Calculating the EAR from the Quoted Rate
What is the effective annual rate if the quoted rate is 6% and interest is
charged quarterly?
Month
Opening
Balance
Interest
Rate Interest
Closing
Balance
January 1,000.00 1,000.00
February 1,000.00 1,000.00
March 1,000.00 1.50% 15.00 1,015.00
April 1,015.00 1,015.00
May 1,015.00 1,015.00
June 1,015.00 1.50% 15.23 1,030.23
July 1,030.23 1,030.23
August 1,030.23 1,030.23
September 1,030.23 1.50% 15.45 1,045.68
October 1,045.68 1,045.68
November 1,045.68 1,045.68
December 1,045.68 1.50% 15.69 1,061.36
1. Take the quoted rate and divide it by the frequency
with which interest is charged:
6% / 4 = 1.5%
2. Turn the interest rate into a decimal:
1.5% / 100 = 0.015
3. Add one to the decimal:
1.015 to the power of 4
(1.015 x 1.015 x 1.015 x 1.015)
= 1.0613634
4. Multiply this number to the power of the number
of times interest is charged:
0.015 + 1 = 1.015
5. Minus the one and turn the number back into a
percentage:
1.0613634 – 1 = 0.0613634
0.0613634 x 100 = 6.14% EAR

31. Class Question
• Take the quoted rate and divide it by the frequency with which
interest is charged.
• Turn the interest rate into a decimal
• Add 1 to the decimal
• Multiply this number to the power of the number of times
interest is charged
• Minus the one and turn the number back into a percentage
United Bank is offering a loan at a quoted rate of 2% per month (that’s 24% per
annum). What is the effective annual rate?

32. INVESTMENT BANKS & CENTRAL
BANKS

33. The Role of an Investment Bank
http://www.goldmansachs.com/careers/why-goldman-sachs/our-
divisions/investment-banking/
Watch the video clip.
This is a career video giving a basic
overview of investment banking.
Answer the following questions:
1. Who are their clients? (3)
2. What areas can an investment
bank provide advice on? (3)

34. The Role of an Investment Bank
Capital Raising
• They support with large scale capital
raising for corporates starting from
around $5 million and upwards to
around £100 billion.
• The investment bank will provide advice
to a business looking to raise long-term
finance.
• Capital could be raised in the form of
DEBT or EQUITY.
• The investment bank will EXECUTE THE
DEAL, if the business decides to act
upon the advice given. They will
organise all the paper work and market
the deal to potential investors.
Strategy support
• Investment banks may provide strategic
advice to businesses who are seeking
growth.
• Growth can take place in two forms
including mergers with other
businesses, or acquisitions of other
business. This is known as M&A
(Mergers & Acquisitions).

35. Case Study: Razak Inc
Razak Inc is already a large global player in technology
that supports smartphones. Razak uses the advice of
Coldman Jones, an investment bank. Coldman’s M&A
team recommends that Razak should buy a minor
competitor company to gain access to the Japanese
market. The Japanese company will cost around $100
million.
The cost of the purchase needs to be raised by Razak
and, again on the advice of the investment back, Razak
uses Coldman Jones to raise the required funds by
selling bonds to investors.

36. The Role of an Investment Bank
Companies
Corporate Finance
Capital Raising
Advisors
Mergers &
Acquistions
Listing &
Bond Issues
Stock Markets
The World’s Top 10 Investment Banks

37. The Role of the Central Bank
• UK Central Bank – Threadneedle Street, London, Founded in 1694
• Since 1694 – banker to the government
– The government gathers tax receipts, spends on defence, welfare etc.
• Since the late 18th Century – banker to the banking system
– Banks hold accounts with the central bank
• Manages the UK foreign exchange and gold reserves
– Many governments also hold money in other currencies – foreign exchange
reserves
• Regulatory role
– Many central banks regulate other banks
– Set interest rates in accordance with government policy

38. The Role of the Central Bank
• It does NOT :
• manage the National Debt (This is the Debt
Management Office in the UK)
• provide a depositors protection scheme (This is
the Financial Service Compensation Scheme in the
UK)

39. Plenary
Have you met your
learning outcomes?
Check your learning.
Use the assessment
sheet provided.