The document discusses laws and regulations governing the insurance sector in Pakistan. It explains that the Insurance Ordinance 2000 replaced the Insurance Act 1938 and divided insurance business into life and non-life classes. It outlines the minimum paid-up capital requirements for life (150 million rupees) and non-life (80 million rupees) insurers. Insurers must obtain registration certificates from SECP, meet solvency and other requirements, and maintain 10% of paid-up capital as deposit with the State Bank of Pakistan. The ordinance aims to establish a legal framework for regulating Pakistan's insurance industry.
This document provides information about a student's assignment submission for a course on Financial Markets and Institutions. It includes the student's details, assignment details such as course code, submission date, and signature. It also includes sections for the tutor to fill out including date of receiving assignment, marks obtained, comments, and date of returning the assignment with the tutor's signature. The assignment questions ask about the importance of financial markets, components of the financial system, roles of the central bank, and functions of money.
Commercial banks perform primary functions of accepting deposits, advancing loans, and creating credit. They also provide secondary functions like agency services and general utility services. Modern banks help achieve socio-economic objectives set by governments, such as promoting small businesses and self-employment through specialized lending schemes at concessional rates of interest.
The document discusses various topics related to commercial banking including:
1. It defines what a bank is and its key functions of accepting deposits and lending funds.
2. It describes different types of banking systems used around the world such as branch banking, unit banking, and corresponding banking.
3. It provides an overview of the largest banks in the world by total assets, with the top 5 being in China.
4. It outlines the main sources of funds for banks such as deposits, borrowed funds, and long-term sources. It also discusses the main uses of funds such as loans, investments, and cash.
Commercial banks occupy a dominant position in the money market and form the largest component of any country's banking structure. They are the oldest, largest, and fastest growing financial institutions in India. Commercial banks play a major role in economic growth by mobilizing savings, providing short-term loans and credit, and facilitating trade and business activity through services like checking accounts and lending. They act as reservoirs that collect savings from households and allocate those funds as loans to businesses and individuals for productive investment and use.
Commercial banks are the most important financial institutions for lending and borrowing money. They accept deposits from customers in various forms like demand deposits, fixed deposits, and savings accounts. They use these deposits to advance loans to businesses and individuals. Banks also provide other services like discounting bills of exchange, conducting agency services, and general services like issuing traveler's checks. In India, 14 large commercial banks were nationalized in 1969 to promote equitable development and ensure credit availability in rural and priority sectors. Nationalization led to expansion of bank branches across the country and increased deposit mobilization and lending, especially in agriculture and small businesses.
Commercial banks perform various primary functions including accepting deposits, advancing loans, creating credit, clearing checks, financing foreign trade, and remitting funds. They also perform secondary functions such as providing agency services like collecting payments, purchasing and selling securities, and remitting money. Commercial banks play an important role in a country's economic development by channeling funds from savers to borrowers and investors.
Commercial banks accept deposits from the public and use those funds to issue loans and earn a profit. Their primary functions are accepting various types of deposits like savings accounts, current accounts, fixed deposits, and recurring deposits. They also issue various loan products like short term loans, cash credits, overdrafts, and by discounting bills of exchange. Through the process of credit creation, commercial banks can multiply deposits and loans beyond the initial deposit amounts by keeping only a fraction as reserves, while lending out the rest. This allows them to effectively create money and expand the money supply.
This document provides an overview of commercial banks. It defines commercial banks as financial institutions that accept deposits, make business loans, and offer basic investment products. It notes that central banks oversee commercial banking systems and impose conditions like reserve requirements. The document then describes the primary functions of commercial banks as receiving deposits and advancing loans. It also outlines various agency, general utility, and other roles commercial banks play in promoting economic growth.
This document provides information about a student's assignment submission for a course on Financial Markets and Institutions. It includes the student's details, assignment details such as course code, submission date, and signature. It also includes sections for the tutor to fill out including date of receiving assignment, marks obtained, comments, and date of returning the assignment with the tutor's signature. The assignment questions ask about the importance of financial markets, components of the financial system, roles of the central bank, and functions of money.
Commercial banks perform primary functions of accepting deposits, advancing loans, and creating credit. They also provide secondary functions like agency services and general utility services. Modern banks help achieve socio-economic objectives set by governments, such as promoting small businesses and self-employment through specialized lending schemes at concessional rates of interest.
The document discusses various topics related to commercial banking including:
1. It defines what a bank is and its key functions of accepting deposits and lending funds.
2. It describes different types of banking systems used around the world such as branch banking, unit banking, and corresponding banking.
3. It provides an overview of the largest banks in the world by total assets, with the top 5 being in China.
4. It outlines the main sources of funds for banks such as deposits, borrowed funds, and long-term sources. It also discusses the main uses of funds such as loans, investments, and cash.
Commercial banks occupy a dominant position in the money market and form the largest component of any country's banking structure. They are the oldest, largest, and fastest growing financial institutions in India. Commercial banks play a major role in economic growth by mobilizing savings, providing short-term loans and credit, and facilitating trade and business activity through services like checking accounts and lending. They act as reservoirs that collect savings from households and allocate those funds as loans to businesses and individuals for productive investment and use.
Commercial banks are the most important financial institutions for lending and borrowing money. They accept deposits from customers in various forms like demand deposits, fixed deposits, and savings accounts. They use these deposits to advance loans to businesses and individuals. Banks also provide other services like discounting bills of exchange, conducting agency services, and general services like issuing traveler's checks. In India, 14 large commercial banks were nationalized in 1969 to promote equitable development and ensure credit availability in rural and priority sectors. Nationalization led to expansion of bank branches across the country and increased deposit mobilization and lending, especially in agriculture and small businesses.
Commercial banks perform various primary functions including accepting deposits, advancing loans, creating credit, clearing checks, financing foreign trade, and remitting funds. They also perform secondary functions such as providing agency services like collecting payments, purchasing and selling securities, and remitting money. Commercial banks play an important role in a country's economic development by channeling funds from savers to borrowers and investors.
Commercial banks accept deposits from the public and use those funds to issue loans and earn a profit. Their primary functions are accepting various types of deposits like savings accounts, current accounts, fixed deposits, and recurring deposits. They also issue various loan products like short term loans, cash credits, overdrafts, and by discounting bills of exchange. Through the process of credit creation, commercial banks can multiply deposits and loans beyond the initial deposit amounts by keeping only a fraction as reserves, while lending out the rest. This allows them to effectively create money and expand the money supply.
This document provides an overview of commercial banks. It defines commercial banks as financial institutions that accept deposits, make business loans, and offer basic investment products. It notes that central banks oversee commercial banking systems and impose conditions like reserve requirements. The document then describes the primary functions of commercial banks as receiving deposits and advancing loans. It also outlines various agency, general utility, and other roles commercial banks play in promoting economic growth.
This document provides an overview of 5 commercial banks in Bangladesh - Eastern Bank, Dutch-Bangla Bank, Dhaka Bank, Mercantile Bank, and Jamuna Bank. It discusses the vision, mission, and values of Eastern Bank. It also provides brief descriptions of the missions and visions of Dutch-Bangla Bank, which was the first fully automated bank in Bangladesh, Dhaka Bank, Mercantile Bank, and Jamuna Bank. The document appears to be conducting research and analysis on the deposit rates and interest rates of these 5 commercial banks.
This document discusses the functions of commercial banks. It begins by defining a commercial bank as a profit-seeking business that deals in money and credit by accepting deposits from the public and lending money. It then lists the primary functions of commercial banks as accepting deposits, advancing loans, creating credit, clearing checks, financing foreign trade, and remitting funds. The document also discusses the secondary functions of commercial banks such as providing agency services and general utility services to customers. It provides examples of different types of deposits, loans, and services offered by commercial banks.
1. Banks buy and sell money, dealing in various financial services and transactions involving money. In India, banking is carried out through both indigenous and western systems, with the Reserve Bank of India controlling various types of commercial, savings, cooperative, industrial and other specialized banks.
2. Commercial banks accept demand deposits and provide services like loans, overdrafts, cash credits and bill discounting. They also offer other services like money transfers, safe deposit lockers, payment of bills and taxes.
3. Financial planning is important for businesses to ensure adequate funding is available and properly utilized. It involves estimating capital needs, determining sources of funds, and managing funds through tools like budgeting.
The document provides an overview of loans and advances provided by commercial banks. It discusses key concepts like meaning of loans and advances, types of loans including term loans, demand loans, cash credits and overdrafts. It also describes the utility of loans and advances for businesses, difference between borrowing rate and lending rate for banks, and procedures for granting different types of loans and advances. The document is an introductory chapter that lays the foundation for understanding various aspects of loans and advances.
Commercial banks are for-profit financial institutions that accept deposits, grant loans, and offer other financial services. There are three main types of commercial banks in India: public sector banks controlled by the Reserve Bank of India, private sector banks registered as limited companies, and foreign banks headquartered abroad. The primary functions of commercial banks are accepting deposits, advancing loans, and creating credit, while secondary functions include cheque clearing, fund transfers, and agency services like collecting payments. Commercial banks also offer electronic banking services like debit cards, credit cards, and internet banking. The largest commercial banks in India are State Bank of India, ICICI Bank, and Punjab National Bank.
This document summarizes branch banking and financial services offered by banks in Pakistan. It discusses the different types of accounts banks provide like current accounts, savings accounts, and term deposits. It also outlines the various payment and remittance services offered, including demand drafts, pay orders, telegraphic transfers, and online fund transfers. The document then discusses personal and business loan facilities that banks offer, including secured loans like mortgages and vehicle loans, as well as personal, mortgage, and business finance options.
Difference between balance sheet of manufacturing sector and banking sectorMuhammad Zeeshan Baloch
Manufacturing transforms raw materials into finished goods using machines, tools and labor. Goods are produced on a large scale for sale to wholesalers and retailers. Banks serve as financial intermediaries that collect deposits and use the funds to issue loans and provide other financial services. Both manufacturing companies and banks have assets, liabilities and equity on their balance sheets, but their main sources of income and types of assets differ - manufacturing sells goods while banks earn interest, and manufacturing holds inventory while banks hold loans.
The document defines a bank as a financial institution that accepts money from the public for lending, investment, or withdrawal by demand. It discusses the main types of commercial banks such as deposit banks and industrial banks. The primary functions of commercial banks include accepting deposits, advancing loans, creating credit, clearing checks, and financing foreign trade. Secondary functions include providing agency and general utility services. The top 15 commercial banks in India are listed, with State Bank of India, ICICI Bank, and Punjab National Bank ranked as the top three.
A study on loans & advances and its impact on sbmanushudupa
The document provides information about a study titled "A study on Loans and advances & Its Impact on State Bank of Mysore". It discusses the objectives of studying the relationship between loans/advances and the bank's income, current assets, net profit, and impact of loans on different sectors. It analyzes data from annual reports between 2007-2011 and finds that loans/advances and interest earned have increased annually. It also finds that total assets and current assets have risen due to higher loans. Suggestions include promoting auto loans and offering insurance and special rates during festivals.
This document provides an overview of commercial banking in India. It begins with a brief history of banking in India starting in the 19th century. It then defines commercial banking and describes the key services they provide, including money withdrawal, transfers, savings, loans, foreign exchange, and more. It classifies commercial banks in India into public sector banks, private sector banks, and foreign commercial banks. Several of the largest public and private sector banks are listed. The roles of commercial banks in economic development are also mentioned.
Banks play several important roles in an economy. They act as financial intermediaries by taking deposits from savers and lending to borrowers. This intermediation role helps allocate funds to their most productive uses. Banks also reduce transaction costs for both savers and borrowers. Additionally, banks provide important services like liquidity, payment systems, risk pooling, and monitoring of borrowers, which supports economic activity. While some argue banks are unnecessary in a perfect market, evidence shows banks remain central to economic growth in reality due to market imperfections.
This document discusses various types of consumer and commercial financing services provided by banks and financial institutions. It begins by defining consumer credit as financing provided to consumers for purchasing durable goods in installments. It describes the characteristics and importance of consumer credit in India. It then discusses credit cards, including their origin and types in India. Next, it covers real estate financing and factors considered. It also explains bills discounting, the discounting process, and types of bills like demand bills, usance bills, and clean bills. In summary, the document provides an overview of key consumer and commercial financing services in India including consumer credit, credit cards, real estate loans, and bill discounting.
Commercial banks perform primary functions of accepting deposits and granting loans, as well as secondary functions. Primary functions are the main activities and sources of income, and include accepting deposits through various modes like current, savings, fixed, and recurring deposits. Banks also grant various types of loans including cash credits, overdrafts, and by discounting bills. Secondary functions provide additional services to customers and are not obligatory, such as issuing letters of credit, providing safe deposit vaults, foreign exchange services, and more.
Functional differences between a bank and non-bank financial institution part 2Al Shahriar
This document provides an overview of a study comparing the functions of banks and non-bank financial institutions in Bangladesh. It introduces the objectives and methodology of the study, which involves collecting both primary and secondary data on Dutch-Bangla Bank and Reliance Finance Limited to analyze the differences between their operations as a bank and non-bank financial institution, respectively. The document also provides background information on the two organizations, including their histories, strategies, visions, missions, business objectives, branches/offices, and social initiatives.
Islamic Banking in Somalia; Challenges and OpportunitiesDaud Dahir
This document is a thesis submitted by Daud Dahir Hassan for a Master's degree in Islamic Banking and Finance. It examines the challenges and opportunities of Islamic banking in Somalia. Some of the key challenges identified are the absence of a Sharia advisory board, lack of an active central bank and financial institutions, and low awareness and understanding of Islamic banking among the local community. However, the research also finds that there are opportunities for Islamic banks in Somalia due to high social acceptance compared to conventional banks and the existing practice of some informal Islamic banking products. The thesis uses primary and secondary research methods like surveys and document analysis to investigate this topic.
This document discusses the functions and roles of commercial banks and the Reserve Bank of India (RBI). It provides information on:
1) The primary functions of commercial banks include accepting deposits, granting loans and advances, and performing agency functions.
2) The RBI formulates and implements monetary policy to maintain price stability and adequate credit availability. It also regulates and supervises financial institutions and payment systems.
3) The objectives of RBI's monetary policy are price stability, financial stability, and ensuring adequate credit availability to support growth.
This document provides information on various types of investments including equity, mutual funds, insurance, fixed deposits, bonds, gold and real estate. It also discusses financial sector reforms and the role of IRDAI in regulating the insurance industry. The sources of business financing are described under categories such as equity shares, preference shares, debentures, and loans from financial institutions. PAN cards and Aadhaar cards are also summarized in terms of their purpose and benefits.
Banks play a critical role in economic development by financing businesses and individuals. In India, banks cater to vast numbers of savers and provide financing needed for corporate and individual needs. Over time, banks have evolved, taking on new forms and services in response to economic changes. Today commercial banks in India accept deposits, provide loans, facilitate payments, support trade and development, and offer additional financial products and services.
WHAT IS A BANK, CLASSIFY AND DISCUSS BANKS.
Bank: a bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.
savings bank account services by karnataka bankAprameya joshi
the document starts with introduction to financial services then goes with comercial banks and then speaks about the profile of karnataka bank and savings bank account services of karnataka bank
This document provides an overview of 5 commercial banks in Bangladesh - Eastern Bank, Dutch-Bangla Bank, Dhaka Bank, Mercantile Bank, and Jamuna Bank. It discusses the vision, mission, and values of Eastern Bank. It also provides brief descriptions of the missions and visions of Dutch-Bangla Bank, which was the first fully automated bank in Bangladesh, Dhaka Bank, Mercantile Bank, and Jamuna Bank. The document appears to be conducting research and analysis on the deposit rates and interest rates of these 5 commercial banks.
This document discusses the functions of commercial banks. It begins by defining a commercial bank as a profit-seeking business that deals in money and credit by accepting deposits from the public and lending money. It then lists the primary functions of commercial banks as accepting deposits, advancing loans, creating credit, clearing checks, financing foreign trade, and remitting funds. The document also discusses the secondary functions of commercial banks such as providing agency services and general utility services to customers. It provides examples of different types of deposits, loans, and services offered by commercial banks.
1. Banks buy and sell money, dealing in various financial services and transactions involving money. In India, banking is carried out through both indigenous and western systems, with the Reserve Bank of India controlling various types of commercial, savings, cooperative, industrial and other specialized banks.
2. Commercial banks accept demand deposits and provide services like loans, overdrafts, cash credits and bill discounting. They also offer other services like money transfers, safe deposit lockers, payment of bills and taxes.
3. Financial planning is important for businesses to ensure adequate funding is available and properly utilized. It involves estimating capital needs, determining sources of funds, and managing funds through tools like budgeting.
The document provides an overview of loans and advances provided by commercial banks. It discusses key concepts like meaning of loans and advances, types of loans including term loans, demand loans, cash credits and overdrafts. It also describes the utility of loans and advances for businesses, difference between borrowing rate and lending rate for banks, and procedures for granting different types of loans and advances. The document is an introductory chapter that lays the foundation for understanding various aspects of loans and advances.
Commercial banks are for-profit financial institutions that accept deposits, grant loans, and offer other financial services. There are three main types of commercial banks in India: public sector banks controlled by the Reserve Bank of India, private sector banks registered as limited companies, and foreign banks headquartered abroad. The primary functions of commercial banks are accepting deposits, advancing loans, and creating credit, while secondary functions include cheque clearing, fund transfers, and agency services like collecting payments. Commercial banks also offer electronic banking services like debit cards, credit cards, and internet banking. The largest commercial banks in India are State Bank of India, ICICI Bank, and Punjab National Bank.
This document summarizes branch banking and financial services offered by banks in Pakistan. It discusses the different types of accounts banks provide like current accounts, savings accounts, and term deposits. It also outlines the various payment and remittance services offered, including demand drafts, pay orders, telegraphic transfers, and online fund transfers. The document then discusses personal and business loan facilities that banks offer, including secured loans like mortgages and vehicle loans, as well as personal, mortgage, and business finance options.
Difference between balance sheet of manufacturing sector and banking sectorMuhammad Zeeshan Baloch
Manufacturing transforms raw materials into finished goods using machines, tools and labor. Goods are produced on a large scale for sale to wholesalers and retailers. Banks serve as financial intermediaries that collect deposits and use the funds to issue loans and provide other financial services. Both manufacturing companies and banks have assets, liabilities and equity on their balance sheets, but their main sources of income and types of assets differ - manufacturing sells goods while banks earn interest, and manufacturing holds inventory while banks hold loans.
The document defines a bank as a financial institution that accepts money from the public for lending, investment, or withdrawal by demand. It discusses the main types of commercial banks such as deposit banks and industrial banks. The primary functions of commercial banks include accepting deposits, advancing loans, creating credit, clearing checks, and financing foreign trade. Secondary functions include providing agency and general utility services. The top 15 commercial banks in India are listed, with State Bank of India, ICICI Bank, and Punjab National Bank ranked as the top three.
A study on loans & advances and its impact on sbmanushudupa
The document provides information about a study titled "A study on Loans and advances & Its Impact on State Bank of Mysore". It discusses the objectives of studying the relationship between loans/advances and the bank's income, current assets, net profit, and impact of loans on different sectors. It analyzes data from annual reports between 2007-2011 and finds that loans/advances and interest earned have increased annually. It also finds that total assets and current assets have risen due to higher loans. Suggestions include promoting auto loans and offering insurance and special rates during festivals.
This document provides an overview of commercial banking in India. It begins with a brief history of banking in India starting in the 19th century. It then defines commercial banking and describes the key services they provide, including money withdrawal, transfers, savings, loans, foreign exchange, and more. It classifies commercial banks in India into public sector banks, private sector banks, and foreign commercial banks. Several of the largest public and private sector banks are listed. The roles of commercial banks in economic development are also mentioned.
Banks play several important roles in an economy. They act as financial intermediaries by taking deposits from savers and lending to borrowers. This intermediation role helps allocate funds to their most productive uses. Banks also reduce transaction costs for both savers and borrowers. Additionally, banks provide important services like liquidity, payment systems, risk pooling, and monitoring of borrowers, which supports economic activity. While some argue banks are unnecessary in a perfect market, evidence shows banks remain central to economic growth in reality due to market imperfections.
This document discusses various types of consumer and commercial financing services provided by banks and financial institutions. It begins by defining consumer credit as financing provided to consumers for purchasing durable goods in installments. It describes the characteristics and importance of consumer credit in India. It then discusses credit cards, including their origin and types in India. Next, it covers real estate financing and factors considered. It also explains bills discounting, the discounting process, and types of bills like demand bills, usance bills, and clean bills. In summary, the document provides an overview of key consumer and commercial financing services in India including consumer credit, credit cards, real estate loans, and bill discounting.
Commercial banks perform primary functions of accepting deposits and granting loans, as well as secondary functions. Primary functions are the main activities and sources of income, and include accepting deposits through various modes like current, savings, fixed, and recurring deposits. Banks also grant various types of loans including cash credits, overdrafts, and by discounting bills. Secondary functions provide additional services to customers and are not obligatory, such as issuing letters of credit, providing safe deposit vaults, foreign exchange services, and more.
Functional differences between a bank and non-bank financial institution part 2Al Shahriar
This document provides an overview of a study comparing the functions of banks and non-bank financial institutions in Bangladesh. It introduces the objectives and methodology of the study, which involves collecting both primary and secondary data on Dutch-Bangla Bank and Reliance Finance Limited to analyze the differences between their operations as a bank and non-bank financial institution, respectively. The document also provides background information on the two organizations, including their histories, strategies, visions, missions, business objectives, branches/offices, and social initiatives.
Islamic Banking in Somalia; Challenges and OpportunitiesDaud Dahir
This document is a thesis submitted by Daud Dahir Hassan for a Master's degree in Islamic Banking and Finance. It examines the challenges and opportunities of Islamic banking in Somalia. Some of the key challenges identified are the absence of a Sharia advisory board, lack of an active central bank and financial institutions, and low awareness and understanding of Islamic banking among the local community. However, the research also finds that there are opportunities for Islamic banks in Somalia due to high social acceptance compared to conventional banks and the existing practice of some informal Islamic banking products. The thesis uses primary and secondary research methods like surveys and document analysis to investigate this topic.
This document discusses the functions and roles of commercial banks and the Reserve Bank of India (RBI). It provides information on:
1) The primary functions of commercial banks include accepting deposits, granting loans and advances, and performing agency functions.
2) The RBI formulates and implements monetary policy to maintain price stability and adequate credit availability. It also regulates and supervises financial institutions and payment systems.
3) The objectives of RBI's monetary policy are price stability, financial stability, and ensuring adequate credit availability to support growth.
This document provides information on various types of investments including equity, mutual funds, insurance, fixed deposits, bonds, gold and real estate. It also discusses financial sector reforms and the role of IRDAI in regulating the insurance industry. The sources of business financing are described under categories such as equity shares, preference shares, debentures, and loans from financial institutions. PAN cards and Aadhaar cards are also summarized in terms of their purpose and benefits.
Banks play a critical role in economic development by financing businesses and individuals. In India, banks cater to vast numbers of savers and provide financing needed for corporate and individual needs. Over time, banks have evolved, taking on new forms and services in response to economic changes. Today commercial banks in India accept deposits, provide loans, facilitate payments, support trade and development, and offer additional financial products and services.
WHAT IS A BANK, CLASSIFY AND DISCUSS BANKS.
Bank: a bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.
savings bank account services by karnataka bankAprameya joshi
the document starts with introduction to financial services then goes with comercial banks and then speaks about the profile of karnataka bank and savings bank account services of karnataka bank
Banks act as financial intermediaries that accept deposits and channel those funds into lending activities. Due to their influence, banks are highly regulated. Banks operate under a fractional reserve system, holding only a small reserve while lending out most deposits for profit. When a bank issues a loan, it credits the borrower's account, creating new money in the form of bank deposits. This credit creation process is one way banks generate profits.
This document discusses commercial banks and non-banking financial institutions. It defines commercial banks as financial institutions that accept deposits and provide loans. It describes their key functions like accepting deposits, providing loans, credit creation, fund transfers, and overdraft facilities. It also discusses recent trends in commercial banking like electronic payment services. The document then defines non-banking financial institutions and describes their role in mobilizing resources and providing long-term financing to support economic development.
Banks play a key role in the Indian financial market as the largest providers of credit and attractors of savings. They have supported the growth and development of India. The Reserve Bank of India centrally monitors the banking system. Banks provide various financial services including taking deposits, lending loans, issuing credit/debit cards, fund transfers, and more. Private banks also offer services for high net worth individuals like tax planning and estate planning. A developed financial system is crucial for a country's economic growth.
- The document discusses sources of short-term finance for businesses. It identifies key sources as trade credit, bank loans/overdrafts, customers' advances, installment plans, and cooperative bank loans.
- Trade credit involves suppliers providing goods on 30-90 day payment terms. Bank financing includes loans, cash credits, overdrafts and bill discounting. Customers' advances and installment plans provide pre-payments from customers. Cooperative banks also offer short-term business loans.
- Short-term financing has benefits like low cost, flexibility and meeting long-term needs but has drawbacks like fixed interest costs, placing charges on assets, and difficulty raising funds during downturns.
Commercial banks accept deposits from the public, make funds available to those who need them through various loans, help facilitate money transfers, and engage in credit creation. They perform traditional banking functions like accepting deposits, advancing loans, and providing checking services. Commercial banks also serve as intermediaries by facilitating payments, collecting instruments, purchasing and selling securities, and providing other agency services for customers.
Commercial banks rely mainly on deposits to fund their operations. They accept various deposit types like current accounts, savings accounts, fixed deposits, and recurring deposits. Current accounts are meant for businesses and offer chequebook facilities and overdrafts but no interest. Savings accounts encourage personal savings and offer modest interest rates. Fixed deposits allow higher interest for locking away funds longer, while recurring deposits build savings with regular installments. Non-resident accounts serve Indian citizens living abroad.
This document provides an overview of capital markets and financial institutions. It defines financial intermediaries as entities that act as middlemen in financial transactions. It describes the main participants in financial markets including issuers, investors, governments, companies and households. It explains the functions of financial institutions like banks and credit companies in facilitating transactions, managing risk, and providing liquidity. It also outlines the different types of financial liabilities institutions face and how they seek to manage their assets and liabilities.
This chapter introduces financial intermediaries such as commercial banks, savings and loans associations, investment companies, insurance companies, and pension funds. Their main function is to provide an inexpensive flow of money from savers to investors and borrowers. Financial intermediaries obtain funds by issuing financial claims and then invest those funds in loans or securities. This provides indirect investment for participants who hold the financial claims. Financial intermediaries provide maturity intermediation by transforming longer-term assets into shorter-term financial claims, reduce risk via diversification, reduce contracting and information costs, and provide payment mechanisms.
The document is a student's project on loan syndication. It includes a declaration by the student that the information submitted is true and original. It also includes a certificate from the student's project guide. The acknowledgements section thanks various individuals who provided guidance and support. The index lists the contents of the project, which covers topics such as the meaning of loan syndication, the syndication process, reasons for syndicated lending, and the role of parties involved. It also includes an overview of ICICI Bank and its syndication services.
This document discusses sources of funds for businesses. It describes internal sources like retained earnings and depreciation, as well as external sources like share capital, loan capital, overdrafts, leasing, and trade credit. Long-term sources include share capital in the form of ordinary, preference, and deferred shares, as well as debt like debentures and mortgages. Short-term sources are those under one year, such as overdrafts, credit cards, and trade credit. The choice of funds depends on costs, use, business size and status, financial situation, and gearing level.
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
This document provides information about a project report submitted by Ashish Soni for their MBA degree. It discusses agricultural loans provided by the State Bank of India, Uklana Mandi branch. The report includes an introduction to banking in India, a history of the State Bank of India, details about agricultural loan assessment, sanctioning and schemes, and post-sanction processes like documentation, control reports, inspections, and loan recovery. It aims to study pre-and post-sanction agricultural loan processes at SBI.
This document discusses different types of bank deposits and plastic money payment options. It outlines demand deposits like current accounts and savings accounts that are payable on demand with low interest rates. Time deposits have a fixed maturity period and higher interest rates. Lease financing allows a company to use an asset through rental payments rather than incurring upfront capital costs. Various plastic money options are discussed, including charge cards that accumulate transactions and credit cards that provide a period of credit before requiring full payment.
Commercial banks perform important economic functions including promoting capital formation, facilitating monetary policy, and directing funds. Their primary functions are accepting deposits and granting loans. Deposits include savings, fixed term, current, and recurring deposits. Loans include cash credits, overdrafts, bills of exchange, and general loans. Secondary functions include agency services like bill collection and money transfers. New services offered by banks include ATM services, online banking, housing loans, and loans for self-employment and education.
Mas finanial ltd 2015 16 BK SCHOOL OF MANAGEMENT Bhavesh Patel
This document provides an overview of non-banking financial companies (NBFCs) in India. It defines NBFCs as financial institutions that provide banking services without a banking license. NBFCs are regulated by the Reserve Bank of India and must be registered with the RBI. To register, an NBFC needs a minimum net owned fund of Rs. 25 lakh. The document outlines the registration process and regulatory framework for NBFCs in India.
This document is a report on the overall banking operations of Axis Bank Ltd submitted by Komal Maheshwari. It discusses the four main types of banking - central banking, retail banking, commercial banking, and investment banking. It then provides details about Axis Bank, including its revenue, branches, ATMs, and employees. The report describes the various products and services offered by Axis Bank like credit cards, accounts, corporate banking, insurance, and mortgage loans. It also explains the process of opening accounts, cash management procedures, and closing of accounts at Axis Bank.
This document contains 10 questions related to financial calculations. Question 3 calculates the present value of an annuity of $2,982 received annually for 12 years at an interest rate of 6% per year. Question 4 calculates the annual payment amount into an annuity over 10 years at 8% interest to reach a future value of $50,000 in two different scenarios. Question 5 calculates the implicit interest rate based on reaching a future value of $1,000,000 from an initial $1,000 investment over 100 years.
This document contains a student's assignment submission for a course in financial management. It includes the student's details, the assignment questions, and the student's answers to two of the questions. The first question defines financial management and discusses the goals of a firm in detail. The second question defines 20 key financial terms. The student provided thorough definitions for each term. The assignment was submitted on time and received positive feedback from the tutor based on the quality of the responses.
This document contains a student's assignment submission for an Organizational Behavior course. It includes the student and tutor details, assignment questions, and the student's responses. The student answers two questions regarding the importance of studying organizational behavior and the roles of different social sciences in understanding employee behavior. The responses provide definitions and discuss how organizational behavior helps improve skills, motivation, management, and organizational performance. It also explains how psychology, social psychology, sociology, and anthropology contribute to understanding individual and group behaviors in organizations.
The document outlines six key steps for successfully launching a new product: 1) Test the product before launch to assess audience reception. 2) Improve your team and prepare them for changes. 3) Prepare for a potential increase in sales volume. 4) Maintain focus on your existing core business. 5) Establish metrics to regularly measure product performance. 6) Gather customer feedback after launch to determine improvements. Following these steps can help make a product launch more memorable and the product itself more successful in the marketplace.
This document defines and discusses key concepts related to investments including direct investing, investment analysis, portfolio management, and money markets. It defines direct investment as investing in controlling interests of foreign businesses. Investment analysis evaluates investments for profitability and risk, while portfolio management determines optimal investment mixes. The document also defines money markets as markets for short-term financial instruments like treasury bills, certificates of deposit, commercial paper, repurchase agreements, and corporate bonds. It explains that money markets are used for short-term borrowing and lending.
1st solve assignment Management information systemDanish Saqi
Information systems are essential for running and managing modern businesses. They help reduce costs, improve efficiency and productivity, minimize litigation risks, safeguard vital information, support better decision making, and preserve corporate memory. Porter's competitive forces model examines how five competitive forces - traditional competitors, new market entrants, substitute products/services, suppliers, and customers - shape a firm's competitive strategies. Firms can use information systems to develop strategies to deal with these competitive forces, such as by creating new products/services, improving customer intimacy and gaining competitive advantages.
This document contains the answer to a question about the most important tools and technologies for safeguarding information resources. It defines safeguarding information as protecting children from abuse, harm, and enabling the best outcomes. It then lists two key tools: campus border firewalls, which prevent unauthorized access to private networks, and encryption, which securely encrypts data to meet legal obligations.
The document discusses several topics related to international business and finance. It begins by explaining the goal of management is to maximize shareholder wealth by increasing stock price. It then discusses the organizational structure of multinational corporations (MNCs), describing centralization where decisions are made at the top level, and decentralization where decision making is delegated to lower levels. Next, it outlines key theories justifying international business such as comparative advantage and product life cycle theory. It concludes by explaining the components that make up a country's balance of payments, including the current account which covers trade in goods, services, and factor incomes.
The document defines and explains the inputs, tools, and outputs of three project procurement management processes: plan procurement management, conducting procurements, and contract administration.
Plan procurement management determines whether to acquire outside support and what to acquire. Its inputs include the project management plan, requirements documentation, risk register, activity resource requirements, project schedule, activity cost estimates, stakeholder register, and organizational process assets.
Conducting procurements manages the actual procurement process. Its inputs are the procurement management plan and seller proposals. Tools include procurement negotiations and contract types. Outputs are the project documents updates and organizational process assets updates.
Contract administration manages the executed contracts. Its inputs are the project documents, work performance reports
Entrepreneurship second assignment, M.Com, CommerceDanish Saqi
1. Explain the Procedures of launching new Product.
2. Explain financial planning Balance sheet, Income statement and Cash Flow Statement?
3. Explain the Barriers to creativity.
4. Explain the Techniques to improve creativity.
5. Explain the Components of Business Plans.
6. Explain the difference between Managerial VS Entrepreneurial Decision makings.
7. Explain the Michael Porter’s Five Forces Model.
8. Explain the Women entrepreneurship.
9. Describe Business Model? Identify Four Major Component of Business Model?
10. Role of Entrepreneur in Economic Development and also explain Social Responsibility and Ethics.
1. Characteristics or Features or Importance of Successful Entrepreneurs. Or explain the personal Features of Entrepreneurial leadership.
2. What is entrepreneurial decision process?
3. Entrepreneurship and the Entrepreneurial Process. Explain.
4. Explain Break even analysis and its calculator.
5. Write down the steps in preparing Marketing Plan.
6. What is the Importance of International Entrepreneurship?
7. Entrepreneurial Entry into International Business.
8. Features of Joint Venture and Franchising.
9. Features and types of Synergy in Mergers & Acquisition.
10. What are the Methods of Generating Ideasalso explain Innovation, Creativity and Entrepreneurship.
2nd Assignment of organization Behavior, M.com Danish Saqi
1. Differentiate between affect, emotion and moods and the importance in organizational behaviour.
2. Explain the source of emotions and moods.
3. Highlight different external constrains on emotion.
4. How do our emotion and moods influence our job performance and satisfaction? This can be explained through affective event theory (AET). Describe AET and its importance.
5. How we can implement emotion and moods in selection, decision making, creativity, motivation and leadership
6. Explain followings:
i. Problem solving teams
ii. Self managed work teams
iii. Cross functional teams
iv. Virtual teams
7. How we can create effective teams?
8. Describe the role of effective communication in organization change.
9. Explain the role of leadership in organization behaviour.
10. Explain organization behaviour in global perspective.
Organization behavior is important for managers to understand in order to improve organizational performance. It involves the scientific study of human behavior in organizational settings and how individuals, groups, and structure impact behavior within an organization. Understanding OB helps managers motivate employees, improve group dynamics, manage change, and utilize organizational behavior concepts, theories, and tools. It is vital for managers to understand how people behave individually and in groups in order to get workers to perform effectively and efficiently. OB can be analyzed at the individual, group, and organizational levels, and managers need insight into behavioral factors at each level.
The chapter Lifelines of National Economy in Class 10 Geography focuses on the various modes of transportation and communication that play a vital role in the economic development of a country. These lifelines are crucial for the movement of goods, services, and people, thereby connecting different regions and promoting economic activities.
How to Setup Warehouse & Location in Odoo 17 InventoryCeline George
In this slide, we'll explore how to set up warehouses and locations in Odoo 17 Inventory. This will help us manage our stock effectively, track inventory levels, and streamline warehouse operations.
Elevate Your Nonprofit's Online Presence_ A Guide to Effective SEO Strategies...TechSoup
Whether you're new to SEO or looking to refine your existing strategies, this webinar will provide you with actionable insights and practical tips to elevate your nonprofit's online presence.
Beyond Degrees - Empowering the Workforce in the Context of Skills-First.pptxEduSkills OECD
Iván Bornacelly, Policy Analyst at the OECD Centre for Skills, OECD, presents at the webinar 'Tackling job market gaps with a skills-first approach' on 12 June 2024
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
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Training: ISO/IEC 27001 Information Security Management System - EN | PECB
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Article: https://pecb.com/article
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Level 3 NCEA - NZ: A Nation In the Making 1872 - 1900 SML.pptHenry Hollis
The History of NZ 1870-1900.
Making of a Nation.
From the NZ Wars to Liberals,
Richard Seddon, George Grey,
Social Laboratory, New Zealand,
Confiscations, Kotahitanga, Kingitanga, Parliament, Suffrage, Repudiation, Economic Change, Agriculture, Gold Mining, Timber, Flax, Sheep, Dairying,
Level 3 NCEA - NZ: A Nation In the Making 1872 - 1900 SML.ppt
Fi 2st assignment
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Directorate of Distance Learning
Education
G.C University Faisalabad
FORM FOR ASSESSMENT OF ASSIGNMENT
(This part will be filled by Student)
Name of student: MUHAMMAD DANISH Name of Tutor: Sir Muhammad Sajid SB
Roll No. 119467 Address of Tutor:
_________________________________
_________________________________
Contact No._______________________
Semester: 2nd
Year: 2015 To 2017
Address:
H # P – 802 G M ABAD NO.1 FSD
Name of course: Financial Market & Institutions Assignment No. 2st Code No._____
Last date of submission of Assignment: 31-08-2016
Date of submission of Assignment: 31-08-2016
Signature of Student: M.DANISH
(This part will be filled by Tutors)
Nameof study Center:_____________________ District:___________
Date of receiving Assignment: _______________
Q.No. 1 2 3 4 5 6 7 8 9 10
Cumulative
Obtained
Marks
Marks Obtained
Total Marks
Tutors’ comments:
______________________________________________________________________
______________________________________________________________________
Date of Assignment Return: _________ Signature of
Tutor
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Q1:- Explain Pension funds in detail also discuss regulatory
framework of pension funds under the Supervision of SECP.
Answer:
PensionFund:
A pension is a fund into which a sum of money is added during an employee's
employment years, and from which payments are drawn to support the person's retirement from
work in the form of periodic payments. A pension may be a "defined benefit plan" where a fixed
sum is paid regularly to a person, or a "defined contribution plan" under which a fixed sum is
invested and then becomes available at retirement age.
Different types of pension fund:
There are two basic types of pension fund as under:
1. Private Pension Funds:
“The private pension funds are those funds administered by a private corporation
(e.g. insurance company, mutual fund.)”.
“Any pension plan set up by employers, groups, or individuals”.
2. Public Pension Funds:
“Public pension funds are those funds administered by a federal, state, or local
government (e.g. social security)”.
“Any pension plan set up by a government body for the general public.”
Regulationof PensionPlans:
For many years, pension plans were relatively free of government regulation.
Many companies provided pension benefits as rewards for long years of good service and
used the benefits as an incentive. Frequently, pension benefits were paid out of current
income. When the firm failed or was acquired by another firm, the benefits ended. During
the Great Depression, widespread pension plan failures led to increased regulation and to
the establishment of the Social Security system.
Employee Retirement Income Security Act:
SECP set certain standards that must be followed by all pension plans. Failure to
follow the provisions of the act may cause a plan to lose its advantageous tax status. The
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motivation for the act was that many workers who had contributed to plans for years were
losing their benefits when plans failed. The principal features of the act are the following:
SECP established guidelines for funding.
It provided that employees switching jobs might transfer their credits from one
employer plan to the next.
Plans must have minimum vesting requirements. Vesting refers to how long an
employee must work for the company to be eligible for pension benefits. The
maximum permissible vesting period is seven years, though most plans allow for
vesting in less time. Employee contributions are always immediately vested.
Pension Benefit Guarantee Corporation:
SECP also established the Pension Benefit Guarantee Corporation, a government
agency that performs a role similar to that of the PFDIC. It insures pension benefits up to
a limit if a company with an underfunded pension plan goes bankrupt or is unable to meet
its pension obligations for other reasons.
When the market prices were high, most defined-benefit pension plans were
adequately funded. Many firms with defined-benefit plans find it hard to compete against
firms with much lower cost defined-contribution plans. This competitive disadvantage
increases the possibility that the firms may not survive to pay down their deficits.
Individual Retirement Plans:
The Pension Reform Act of 1978 updated the Self-Employed Individuals Tax
Retirement Act of 1962 to authorize individual retirement accounts (IRAs). IRAs
permitted people (such as those who are self-employed) who are not covered by other
pension plans to contribute into a tax-deferred savings account. Legislation in 1981 and
1982 expanded the eligibility of these accounts to make them available to almost
everyone. IRAs proved extremely popular, to the extent that their use resulted in
significant losses of tax revenues to the government.
Future of Pension Funds:
We can expect that pension funds will continue their growth and popularity as the
population continues to grow and age. Workers in their early years of employment often
find discussions of retirement investing creeping into their conversations. This
heightened attention to providing for the future will result in an increased number of
pension funds as well as a greater variety of pension fund options to choose among. We
can also expect to see pension funds gain increased power over corporations as they
control increasing amounts of stock.
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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Q2:- Explain commercial banks, different services and departments of
commercial banks.
Answer:
CommercialBank:
A Commercial Bank is a financial institution that provides various financial services,
such as accepting deposits and issuing loans. Commercial bank customers can take advantage
of a range of investment products that commercial banks offer like savings accounts and
certificates of deposit.
Services ofCommercialBank:
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
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
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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 advices 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.
Departments of Commercialbank:
To begin, a bank is structured like any other business that provides services to its
customers. It consists of the front office and the back office.
Front Office of a Bank:
Employees who are involved in external activities with customers who transact
business with a bank.
Back Office of a Bank:
Employees who perform internal activities to affect the operational functions of a
bank. Some activities include interaction with customers, some do not.
Types of departments of Front and back office department
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1. Saving bank
2. Current account
3. Fixed deposit
4. Remittances
5. Clearing
6. Staff salary
7. Pension payment
8. Security department
9. Stationery department
10. Loan section
Loan department may be have separate departments such as
1. Retail loan
2. Housing loan
3. MSME
4. Government sponsored schemes loan processing center
5. Agricultural finance department
6. Gold loan department
7. Foreign exchange – deposits/ remittances/loans/guarantees etc.
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Q3:- Explain insurance, importance of insurance and types of
insurance policies.
Answer:
Insurance:
An arrangement by which a company or the state undertakes to provide a guarantee of
compensation for specified loss, damage, illness, or death in return for payment of a specified
premium.
Risk-transfer mechanism that ensures full or partial financial compensation for the
loss or damage caused by event(s) beyond the control of the insured party. Under an insurance
contract, a party (the insurer) indemnifies the other party (the insured) against a specified
amount of loss, occurring from specified eventualities within a specified period, provided a
fee called premium is paid.
Importance of Insurance:
There are some points of importance of insurance.
1. Provide safety and security:
Insurance provide financial support and reduce uncertainties in business and human
life. It provides safety and security against particular event. There is always a fear of sudden
loss. Insurance provides a cover against any sudden loss. For example, in case of life
insurance financial assistance is provided to the family of the insured on his death. In case of
other insurance security is provided against the loss due to fire, marine, accidents etc.
2. Generates financial resources:
Insurance generate funds by collecting premium. These funds are invested in
government securities and stock. These funds are gainfully employed in industrial
development of a country for generating more funds and utilised for the economic
development of the country. Employment opportunities are increased by big investments
leading to capital formation.
3. Life insurance encourages savings:
Insurance does not only protect against risks and uncertainties, but also provides an
investment channel too. Life insurance enables systematic savings due to payment of regular
premium. Life insurance provides a mode of investment. It develops a habit of saving money
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by paying premium. The insured get the lump sum amount at the maturity of the contract.
Thus, life insurance encourages savings.
4. Promotes economic growth:
Insurance generates significant impact on the economy by mobilizing domestic
savings. Insurance turn accumulated capital into productive investments. Insurance enables to
mitigate loss, financial stability and promotes trade and commerce activities those results into
economic growth and development. Thus, insurance plays a crucial role in sustainable growth
of an economy.
5. Medical support:
A medical insurance considered essential in managing risk in health. Anyone can be a
victim of critical illness unexpectedly. And rising medical expense is of great concern.
Medical Insurance is one of the insurance policies that cater for different type of health risks.
The insured gets a medical support in case of medical insurance policy.
6. Spreading of risk:
Insurance facilitates spreading of risk from the insured to the insurer. The basic
principle of insurance is to spread risk among a large number of people. A large number of
persons get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is
compensated out of funds of the insurer.
7. Source of collecting funds:
Large funds are collected by the way of premium. These funds are utilized in the
industrial development of a country, which accelerates the economic growth. Employment
opportunities are increased by such big investments. Thus, insurance has become an important
source of capital formation.
Types of Insurance Policies:
1. Gap insurance
Guaranteed Auto Protection (GAP) insurance is also known as GAPS and was
established in North American financial industry. GAP insurance is the difference
between the actual cash value of a vehicle and the balance still owed on the financing (car
loan, lease, etc.).
2. Health insurance
Health insurance is a type of insurance coverage that covers the cost of
an insured individual's medical and surgical expenses. Depending on the type
of health insurance coverage, either the insured pays costs out-of-pocket and is
then reimbursed, or the insurer makes payments directly to the provider.
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3. Income protection insurance
Income Protection Insurance (IPI) is an insurance policy, available
principally in Australia, Ireland, New Zealand, South Africa, and the United
Kingdom, paying benefits to policyholders who are incapacitated and hence
unable to work due to illness or accident.
4. Casualty insurance
Casualty insurance is a problematically defined term, which broadly
encompassesinsurance not directly concerned with life insurance,
health insurance, or propertyinsurance. It is mainly liability coverage of an
individual or organization for negligent acts or omissions.
5. Life insurance
Insurance that pays out a sum of money either on the death of the insured
person or after a set period.
6. Burial insurance
“Burial insurance” usually refers to a whole life insurance policy with a
death benefit of from $5,000 to $25,000. As its nickname implies, people buy this
type of policy to provide money for funeral and burial costs for themselves and/or
family members.
7. Property insurance
Property insurance is a policy that provides financial reimbursement to the
owner or renter of a structure and its contents, in the event of damage or
theft. Property insurancecan include homeowners insurance, renters insurance,
flood insuranceand earthquake insurance.
8. Liability insurance
Liability insurance is a part of the general insurance system of risk
financing to protect the purchaser (the "insured") from the risks
of liabilities imposed by lawsuits and similar claims. It protects the insured in the
event he or she is sued for claims that come within the coverage of
the insurance policy.
9. Credit insurance
Credit insurance is a type of life insurance policy purchased by a borrower
that pays off one or more existing debts in the event of a death, disability, or in
rare cases, unemployment.
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Q4:- Explain in detail important laws/rules issued in insurance act
1938 and insurance ordinance 2000 to conduct insurance
business in Pakistan.
Answer:
The Insurance Act, 1938 is a law originally passed in 1938 in British India to
regulate the insurance sector. It provides the broad legal framework within which the
industry operates.
The President of Pakistan had promulgated the Insurance Ordinance, 2000 on 19
August 2000 repealing the Insurance Act 1938.
The new ordinance has divided Life Insurance Businessand Non Life Insurance Business
into following classes:
LIFE INSURANCE BUSINESS:
1. Ordinary Life Business.
2. Capital Redemption Business.
3. Pension Fund Business.
4. Accident and Health Business.
NON-LIFE INSURANCE BUSINESS:
1. Fire and Property Damage Business.
2. Marine, Aviation and Transport Business.
3. Motor Third Party Compulsory Business.
4. Liability Business.
5. Worker’s Compensation Business.
6. Credit and Surety-ship Business.
7. Accident and Health Business.
8. Agriculture Insurance including Corp, Insurance.
9. Miscellaneous Business.
A public company or a body corporate can start insurance business in Pakistan. A
certificate of registration as insurer will be obtained within six months for life business
and non-life business separately. The registered insurer will meet the requirements of
minimum paid up capital, statutory deposits, solvency, requirements, and reinsurance:
arrangement appointment of auditors and to comply with Provisions of this Ordinance.A
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registered insurer shall have to pay an annual supervision fee to SECP at the rate of R.s. 1
per thousands of gross premium written in Pakistan during the calendar year with a
minimum of R.s. 100,000.
LIFE INSURANCE BUSINESS: 150 MILLION RUPEES.
100 Million Rupees will be attained up to 31st December 2002.
150 Million Rupees will be attained up to 31st December 2004.
NON-LIFE INSURANCE BUSINESS: 80 MILLION RUPEES.
50 Million Rupees will be attained up to 31st December 2002.
80 Million Rupees will be attained up to 31st December 2004.
Every insurer will maintain a minimum deposit equal to 10% of its Paid-Up-Capital with
State Bank of Pakistan. The deposit in excess of amount required can be asked for with
permission from SECP for refund.
Reinsurance Arrangements:
The insurers will maintain assets in excess of liabilities to meet solvency
requirement as per this Ordinance. Insurance companies will maintain adequate
reinsurance arrangements.
The insurers will submit the quarterly returns on the prescribed form to SECP.
The auditors shall be appointed by the commission to audit the accounts of insurer’s.
Actuary report for life insurance business shall be necessary. If any return is considered
inaccurate or defective the Commission can call for further information, call upon
insurer; examine any officer of insurer (or decline to accept the return).
The process of implementation of new insurance law is very slow. In fact, the new
law is the outcome of the findings and recommendations of the National Insurance
Reforms Commission which worked in 1988-89 and presented its reports in 1990. Under
the Capital Market Development Program, the ADB supported Pakistan and consultants
were engaged in 1997. The consultants presented the draft bill of Insurance Act, 1999 in
July 1999. At lasts on 19th August 2000 the President of Pakistan Promulgated the
Insurance Ordinance, 2000 repealing the Insurance Act, 1938.
However, now the economic environment of the country is changing. The foreign
exchange remittances have been increased and the exchange rates have been stabilized.
The sick industries are being revived through CIRC (corporate and Industrial
Restructuring Corporation). The public and private sectors are expected to be involved in
the reconstruction of Afghanistan. The Motorway and other highway projects are being
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completed. The construction of the third seaport at Gwadar has also been started. Foreign
investments are also anticipated.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Q5: - Explain mutual fund and its types in detail
Answer:
Mutual Fund:
A mutual fund is an investment vehicle made up of a pool of funds collected from
many investors for investing in securities such as stocks, bonds, money market
instruments and similar assets.
Types of Mutual Funds:
There are four primary types of mutual funds are available for investors, which are
following.
1. Equity Funds:
A stock fund or equity fund is a fund that invests in stocks, also
called equitysecurities. Stock funds can be contrasted with bond funds and
money funds. Fundassets are typically mainly in stock, with some amount of cash, which
is generally quite small, as opposed to bonds, notes, or other securities.
General equity funds include:
Aggressive growth funds, which seek maximum capital appreciation and may
use speculative strategies.
Small-company funds, which invest in companies with relatively small market
capitalizations.
Growth funds, which invest in larger, established but growing companies. They
generally emphasize capital appreciation.
Growth and income funds, which invest in larger, established companies
that offer the potential for capital appreciation but also pay regular dividends.
Equity-income funds, which primarily invest in dividend-paying stocks.
2. Bond Funds:
A bond fund or debt fund is a fund that invests in bonds, or other debt
securities.Bond funds can be contrasted with stock funds and money funds. Bond
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fundstypically pay periodic dividends that include interest payments on
the fund's underlying securities plus periodic realized capital appreciation.
Types of Bond Funds:
There are three basic types of bond funds, which are following;
(i) Government Bonds:
Government bonds funds invest in debt securities that are issued by
the Pakistan government and its agencies. These funds are regarded as the
safest of the bond funds because the underlying securities are backed by
the full faith and credit of the Pakistan government.
(ii) Municipals Bonds:
Municipal bond funds invest in debt securities issued by state and
local governments to pay for local public projects, such as bridges,
schools, and highways. These bond funds are popular among investors
with high incomes because they are exempt from federal taxes and, in
some cases, from state taxes as well.
(iii) Corporate Bonds:
Corporate bond funds are comprised of bonds issued by
corporations. Any government institution does not back the bonds in a
corporate bond fund. Thus, it is more likely that the underlying bonds
could default if the companies that issue them run into financial trouble.
(iv) Other Bonds:
There are many other types of bond funds. Zero-coupon bond
funds invest in zero coupon bonds; international bond funds invest in
bonds issued by foreign governments and corporations; convertible
securities funds invest in bonds that may be converted into stock. Finally,
if you are looking to diversify your holdings even more, there are multi-
sector bond funds that invest in all different types of bonds: corporate
bonds, municipal bonds, international bonds and so on.
3. Hybrid Funds:
A hybrid fund is a category of mutual fund that is characterized by
portfolio that is made up of a mix of stocks and bonds, which can vary
proportionally over time or remain fixed. Morningstar separates hybrid funds into
domestic hybrid and international hybrid categories.
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4. Money Market Funds:
A money market fund (also called a money market mutual fund) is an
open-ended mutual fund that invests in short-term debt securities such as US
Treasury bills and commercial paper. Money market funds are widely (though not
necessarily accurately) regarded as being as safe as bank deposits yet providing a
higher yield.
Q6:- Explain regulatory framework of mutual funds under the
rules of SECP.
Answer:
Mutual Funds:
A mutual fund is an investment vehicle made up of a pool of funds collected from
many investors for investing in securities such as stocks, bonds, money market instruments
and similar assets.
REGULATORY FRAMEWORKFOR MUTUAL FUNDS:
Board of Directors
A management investment company (mutual fund company) has a CEO, a team of
officers and a board of directors. Each one of these entities is responsible for serving the
interests of the shareholders. The primary responsibility of the officers and the board of
directors is to handle the investment company's administrative matters.
The investment company’s shareholders elect the board of directors. The board
defines the type of funds that will be offered to the public. For example, it will suggest
offering a selection of funds - growth funds, international funds, income funds and soon to
meet the investment needs of many individuals. It will also define each fund's objectives.
The board will also approve and hire the investment advisor, transfer agent and custodian
(defined below) for each fund.
Sponsor
The principal underwriter of a mutual fund is called a distributor, or more
commonly, the sponsor. The sponsor has a written contract with the investment company
that allows it to purchase fund shares at the current net asset value and resell the shares to
the public at the full public offering price, through either outside dealers or through its own
sales force. The contract with the mutual fund company is subject to annual renewal, but as
long as the sponsor is distributing and marketing the shares in a satisfactory manner, there
is no reason why the sponsor's contract should be discontinued.
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Custodian
The custodian is responsible for the possession of the securities purchased by the
investment company for its portfolio. The custodian also handles most of the investment
company's clerical functions. Once securities are transferred to the custodian for
safekeeping, the custodian must keep the assets physically segregated at all times, restrict
access to the account to officers and employees of the investment company, and allow
withdrawal only according to SEC rules.
Investment Advisor
The board of directors hires an investment advisor to invest the cash and securities
held in the fund's portfolio, implement the objectives outlined by the board, manage day-to-
day trading of the portfolio, and handle other tasks that involve the tax implications of the
share. For these services, the investment advisor is acting as a fund advisor or fund
manager, and earns a management fee paid from the fund's net assets. Usually, the fund
manager earns an annual percentage of the fund's value, plus an incentive bonus if he or she
exceeds certain performance goals.
Transfer Agent
The mutual fund contracts with a transfer agent to issue, redeem and cancel fund
shares, handle the distribution of dividend and capital gains to shareholders, and send out
trade confirmations. In certain instances, the custodian will act as transfer agent. The fund
company usually pays the transfer agent a fee for services rendered.
Dealers
As mentioned before, the sponsor usually distributes shares of the mutual fund
through dealers. The dealers purchase shares from the sponsor at a discount to the public
offering price and fill their customers' orders. It is important to note that dealers cannot buy
shares for their own inventory to sell at a later date. They may purchase shares to fill
customer orders or for their own investment, but any purchase that occurs for a dealer's
own investment must be redeemed when sold; it cannot be sold to an investor.
Restrictions on Mutual Fund Operations
The SEC prohibits a mutual fund from engaging in the following activities unless it
meets strict financial and disclosure requirements:
Selling securities short
Buying securities on margin
Participating in joint investment or trading accounts
Distributing its own securities, except through a sponsor
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Otherwise, the fund must disclose these activities and the extent to which it plans to
participate in these activities in its prospectus.
Affiliated and Interested Parties
The 1940 act and its amendments identify two types of people, defined as affiliated
and interested parties, who may influence the investment company's management and
operations and whose actions must be regulated and restricted by the SEC. They may not
borrow money from the investment company or sell any security or property to the
investment company or companies the management company controls.
An affiliated person is someone who controls an investment company's
operations in any way.
An interested person includes those individuals who have a relationship with
an affiliated person that the SEC deems influential in matters of fund operation.
These people would include immediate family members of affiliated parties,
legal counselors, broker-dealers, and so on.
Furthermore, the board of directors must have 40% outside representation: that is, at
least 40% of the board must be made up of individuals who do not have a position with, or
affiliation to, the fund. This restriction includes anyone associated with the underwriter,
investment advisor, custodian or transfer agent.
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Q.7: Explain important functions of commercial banks.
Answer:
1. Primary Function:
i. Accepting Deposits:
It is the most important function of commercial banks. They accept deposits in
several forms according to requirements of different sections of the society.
The main kinds of deposits are:
a) Current Account Deposits or Demand Deposits:
These deposits refer to those deposits, which are repayable by the banks on demand:
Businesspersons with the intention of making transactions with such
deposits generally maintain such deposits.
A cheque without any restriction can draw upon them.
Banks do not pay any interest on these accounts. Rather, banks impose
service charges for running these accounts.
b) Fixed Deposits or Time Deposits:
Fixed deposits refer to those deposits, in which the amount is deposited with the
bank for a fixed period of time.
Such deposits do not enjoy cheque-able facility.
These deposits carry a high rate of interest.
c) Saving Deposits:
These deposits combine features of both current account deposits and fixed
deposits:
The depositors are given cheque facility to withdraw money from their
account. But, some restrictions are imposed on number and amount of
withdrawals, in order to discourage frequent use of saving deposits.
They carry a rate of interest which is less than interest rate on fixed deposits.
It must be noted that Current Account deposits and saving deposits are
chequable deposits, whereas, fixed deposit is a non-chequable deposit.
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ii. Advancingof Loans:
The deposits received by banks are not allowed to remain idle. So, after keeping
certain cash reserves, the balance is given to needy borrowers and interest is charged
from them, which is the main source of income for these banks.
Different types of loans and advances made by Commercial banks are:
a) Cash Credit:
Cash credit refers to a loan given to the borrower against his current assets
like shares, stocks, bonds, etc. A credit limit is sanctioned and the amount is
credited in his account. The borrower may withdraw any amount within his
credit limit and interest is charged on the amount actually withdrawn.
b) Demand Loans:
Demand loans refer to those loans which can be recalled on demand by the
bank at any time. The entire sum of demand loan is credited to the account
and interest is payable on the entire sum.
c) Short-term Loans:
They are given as personal loans against some collateral security. The money
is credited to the account of borrower and the borrower can withdraw money
from his account and interest is payable on the entire sum of loan granted.
2. SecondaryFunctions:
a) Overdraft Facility:
It refers to a facility in which a customer is allowed to overdraw his
current account upto an agreed limit. This facility is generally given to
respectable and reliable customers for a short period. Customers have to pay
interest to the bank on the amount overdrawn by them.
b) Discounting Bills of Exchange:
It refers to a facility in which holder of a bill of exchange can get the bill
discounted with bank before the maturity. After deducting the commission,
bank pays the balance to the holder. On maturity, bank gets its payment from
the party which had accepted the bill.
c) Agency Functions:
Commercial banks also perform certain agency functions for their
customers. For these services, banks charge some commission from their
clients.
3. Some of the agencyfunctions are:
a. Transfer of Funds:
Banks provide the facility of economical and easy remittance of funds
from place-to-place with the help of instruments like demand drafts, mail
transfers, etc.
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b. Collection and Payment of Various Items:
Commercial banks collect cheques, bills,’ interest, dividends,
subscriptions, rents and other periodical receipts on behalf of their customers
and also make payments of taxes, insurance premium, etc. on standing
instructions of their clients.
c. Purchase and Sale of Foreign Exchange:
Some commercial banks are authorized by the central bank to deal in
foreign exchange. They buy and sell foreign exchange on behalf of their
customers and help in promoting international trade.
d. Purchase and Sale of Securities:
Commercial banks buy and sell stocks and shares of private companies as
well as government securities on behalf of their customers.
e. Income Tax Consultancy:
They also give advice to their customers on matters relating to income tax
and even prepare their income tax returns.
f. Trustee and Executor:
Commercial banks preserve the wills of their customers as trustees and
execute them after their death as executors.
g. Letters of Reference:
They give information about the economic position of their customers to
traders and provide the similar information about other traders to their customers.
4. GeneralUtility Functions:
Commercial banks render some general utility services like:
a. Locker Facility:
Commercial banks provide facility of safety vaults or lockers to keep
valuable articles of customers in safe custody.
b. Traveler’s Cheques:
Commercial banks issue traveler’s cheques to their customers to avoid risk
of taking cash during their journey.
c. Letter of Credit:
They also issue letters of credit to their customers to certify their
creditworthiness.
d. Underwriting Securities:
Commercial banks also undertake the task of underwriting securities. As
public has full faith in the creditworthiness of banks, public do not hesitate in
buying the securities underwritten by banks.
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Q.8: Explain different prudential regulations for corporate and
commercial banks issued by SBP for reporting and to perform
banking services.
Answer:
Regulations:
The rules or directives made and maintained by an authority to manage and run
the activities of the corporation or entity. The Prudential Regulations for Corporate /
Commercial Banking do not supersede other directives issued by State Bank of Pakistan
in respect of areas not covered here. Any violation or circumvention of these regulations
shall render the bank/DFI/officer(s) concerned liable for penalties under the Banking
Companies Ordinance, 1962.
Prudential regulations for corporate and commercialbanks:
GUARANTEES:
1. All guarantees issued by the banks / DFIs shall be fully secured, except in the cases
mentioned at Annexure-III where it may be waived up to 50% by the banks / DFIs at
their own discretion, provided that banks / DFIs hold at least 20% of the guaranteed
amount in the form of liquid assets as security.
2. In case of back to back letter of credit issued by the banks / DFIs for export oriented
goods and services, banks / DFIs are free to decide the security arrangements at their
own discretion subject to the condition that the original L/C has been established by
branches of guarantee issuing bank or a bank rated at least A by Standard & Poor,
Moody’s, Fitch-Ibca or Japan Credit Rating Agency (JCRA).
3. The guarantees shall be for a specific amount and expiry date and shall contain claim
lodgment date. However, banks / DFIs are allowed to issue open-ended guarantees
without clearance from State Bank of Pakistan provided banks / DFIs have secured
their interest by adequate collateral or other arrangements acceptable to the bank /
DFI for issuance of such guarantees in favor of Government departments,
corporations / autonomous bodies owned/controlled by the Government and
guarantees required by the courts.
CLASSIFICATION AND PROVISIONING FOR ASSETS LOANS / ADVANCES:
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Banks / DFIs shall observe the prudential guidelines given at Annexure-IV in the
matter of classification of their asset portfolio and provisioning there-against.
At the time of rescheduling / restructuring, banks / DFIs shall consider and examine the
requests for working capital strictly on merit, keeping in view the viability of the project /
business and appropriately securing their interest etc.
All fresh loans granted by the banks / DFIs to a party after rescheduling/
restructuring of its existing facilities may be monitored separately, and will be subject to
classification under this Regulation on the strength of their own specific terms and
conditions.
Banks / DFIs shall classify their loans / advances portfolio and make provisions in
accordance with the criteria prescribed above.
Banks are allowed to take the benefit of 30 percent of FSV of pledged stocks
and mortgaged commercial and residential properties held as collateral against
all NPLs for three years from the date of classification for calculating
provisioning requirement i.e. 31–12–2008. For the purpose of determination of
FSV, revised Annexure-V of PR for Corporate/Commercial Banking shall be
followed.
Banks/DFIs may avail the above benefit of FSV subject to compliance with the
following conditions:
he additional impact on profitability arising from availing the benefit of FSV
against pledged stocks and mortgaged commercial and residential properties
shall not be available for payment of cash or stock dividend.
Heads of Credit of respective banks/DFIs shall ensure that FSV used for taking
benefit of provisioning is determined accurately as per guidelines contained in
PRs and is reflective of market conditions under forced sale situations.
INVESTMENTS AND OTHER ASSETS:
1. The banks shall classify their investments into three categories viz. ‘Held for
Trading,’ ‘Available for Sale’ and ‘Held to Maturity.’ However, investments in
subsidiaries and associates shall be reported separately in accordance with
International Accounting Standards as applicable in Pakistan and shall not be subject
to mark to market.
2. Investment portfolio in ‘Held for Trading’ and ‘Available for Sale’ and other assets
will be subject to detailed evaluation for the purpose of their classification keeping
in view various subjective and objective factors given as under
Quoted Securities:
Government Securities will be valued at PKRV (Reuter Page). TFCs, PTCs and
shares will be valued at their market value. The difference between the market value and
book value will be treated as surplus/deficit.
Un-quoted Securities:
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PTCs and TFCs will be classified on the evaluation / inspection date on the basis
of default in their repayment in line with the criteria prescribed for classification of
medium and long-term facilities. Shares will be carried at the cost. However, in cases
where the breakup value of such shares is less than the cost, the difference of the cost and
breakup value will be classified as loss and provided for accordingly by charging to the
Profit and Loss account of the bank / DFI.
Treatment of Surplus/deficit:
The measurement of surplus/deficit shall be done on portfolio basis. The
surplus/deficit arising as a result of revaluation of ‘Held for Trading’ securities shall be
taken into Profit & Loss Account. The surplus/deficit on revaluation of ‘Available for
Sale’ category shall be taken to “Surplus/Deficit on Revaluation of Securities.”
Impairment in the value of ‘Available for Sale’ or ‘Held to Maturity’ securities will be
provided for by charging it to the Profit and Loss Account.
Other Assets:
Classification of Other Assets and provision required there-against shall be
determined keeping in view the risk involved and the requirements of the International
Accounting Standards.
Submission of returns:
Banks / DFIs shall submit the borrower-wise annual statements regarding
classified loans /advances to the Banking Inspection Department.
Facilities to Private Limited Company:
Banks / DFIs shall formulate a policy, duly approved by their Board of Directors,
about obtaining personal guarantees of directors of private limited companies.
Banks/DFIs may, at their discretion, link this requirement to the credit rating of the
borrower, their past experience with it or its financial strength and operating
performance.
Payment of dividend:
Banks / DFIs shall not pay any dividend on their shares unless and until:
They meet the minimum capital requirements as laid down by the State Bank of
Pakistan from time to time;
All their classified assets have been fully and duly provided for in accordance
with the Prudential Regulations and to the satisfaction of the State Bank of
Pakistan; and
All the requirements laid down in Banking Companies Ordinance, 1962 relating
to payment of dividend are fully complied.
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Q9:- What are different Financial Risks? Explain in detail Credit
risk and its types.
Answer:
FinancialRisks:
Financial risk is the possibility that shareholders will lose money when they invest in a
company that has debt, if the company's cash flow proves inadequate to meet its financial
obligations. When a company uses debt financing, its creditors are repaid before its shareholders
if the company becomes insolvent. Financial risk also refers to the possibility of a corporation or
government defaulting on its bonds, which would cause those bondholders to lose money.
Types of FinancialRisks:
1. Market Risk:
This type of risk arises due to movement in prices of financial instrument. Market
risk can be classified as Directional Risk and Non - Directional Risk. Directional risk is
caused due to movement in stock price, interest rates and more. Non- Directional risk on
the other hand can be volatility risks.
2. Credit Risk:
This type of risk arises when one fails to fulfill their obligations towards their
counter parties. Credit risk can be classified into Sovereign Risk and Settlement Risk.
Sovereign risk usually arises due to difficult foreign exchange policies. Settlement risk on
the other hand arises when one party makes the payment while the other party fails to
fulfill the obligations.
3. Liquidity Risk:
This type of risk arises out of inability to execute transactions. Liquidity risk can
be classified into Asset Liquidity Risk and Funding Liquidity Risk. Asset Liquidity risk
arises either due to insufficient buyers or due to insufficient sellers against sell orders and
buys orders respectively.
4. Operational Risk:
This type of risk arises out of operational failures such as mismanagement
or technical failures. Operational risk can be classified into Fraud Risk and Model
Risk. Fraud risk arises due to lack of controls and Model risk arises due to
incorrect model application.
5. Legal Risk:
This type of financial risk arises out of legal constraints such as lawsuits.
Whenever a company needs to face financial loses out of legal proceedings, it is
legal risk.
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Credit risk:
A credit risk is the risk of default on a debt that may arise from a borrower failing to
make required payments. In the first resort, the risk is that of the lender and includes lost
principal and interest, disruption to cash flows, and increased collection costs.
How is credit risk assessed?
Credit risks are calculated based on the borrowers' overall ability to repay. To assess
credit risk on a consumer loan, lenders look at the five C's: an applicant's credit history, his
capacity to repay, his capital, the loan's conditions and associated collateral.
Similarly, if an investor is thinking about buying a bond, he looks at the credit rating of the bond.
If it has a low rating, the company or government issuing it has a high risk of default.
Conversely, if it has a high rating, it is considered to be a safe investment. Agencies such as
Moody's and Fitch evaluate the credit risks of thousands of corporate bond issuers and
municipalities on an ongoing basis.
Types of Credit Risk:
1. Credit default risk:
The risk of loss arising from a debtor being unlikely to pay its loan obligations in
full or the debtor is more than 90 days past due on any material credit obligation; default
risk may impact all credit-sensitive transactions, including loans, securities
and derivatives.
2. Concentration risk:
The risk associated with any single exposure or group of exposures with the
potential to produce large enough losses to threaten a bank's core operations. It may arise
in the form of single name concentration or industry concentration.
3. Country risk:
The risk of loss arising from a sovereign state freezing foreign currency payments
(transfer/conversion risk) or when it defaults on its obligations (sovereign risk); this type
of risk is prominently associated with the country's macroeconomic performance and its
political stability.
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Q.10: Explain credit risk management framework for banks.
Answer:
Credit Risk ManagementFramework:
Credit risk management:
Credit risk is the potential for loss due to the failure of counterparty to meet its
obligations to pay the Group in accordance with agreed terms. Credit exposures arise from
both the banking and trading books.
Credit risk is managed through a framework that sets out policies and procedures
covering the measurement and management of credit risk. There is a clear segregation of
duties between transaction originators in the businesses and approvers in the Risk function.
All credit exposure limits are approved within a defined credit approval authority
framework. The Group manages its credit exposures following the principle of
diversification across products, geographies, and client and customer segments.
Credit policies:
Group-wide credit policies and standards are considered and approved by the GRC,
which also oversees the delegation of credit approval and loan impairment provisioning
authorities.
Authorized risk committees within Wholesale and Consumer Banking establish policies
and procedures specific to each business. These are consistent with our Group-wide credit
policies, but are more detailed and adapted to reflect the different risk environments and
portfolio characteristics.
Credit rating and measurement:
Risk measurement plays a central role, along with judgment and experience, in
informing risk taking and portfolio management decisions. It is a primary area for sustained
investment and senior management attention.
Credit approval:
Major credit exposures to individual counterparties, groups of connected
counterparties and portfolios of retail exposures are reviewed and approved by the Group
Credit Committee (GCC). The GCC derives its authority from the GRC.
All other credit approval authorities are delegated by the GRC to individuals based
both on their judgment and experience and a risk-adjusted scale that takes account of the
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estimated maximum potential loss from a given customer or portfolio. Credit origination
and approval roles are segregated in all but a very few authorized cases. In those very few
exceptions where they are not, originators can only approve limited exposures within
defined risk parameters.
Credit concentration risk:
Credit concentration risk may arise from a single large exposure or from multiple
exposures that are closely correlated. This is managed within concentration caps set by
counterparty or groups of connected counterparties, and having regard for correlation, by
country and industry in Wholesale Banking; and by product and country in Consumer
Banking. Additional concentration thresholds are set and monitored, where appropriate, by
tenor profile, collateralization levels and credit risk profile.
The responsible risk committees in each of the businesses monitor credit
concentrations and concentration limits that are material to the Group are reviewed and
approved at least annually by the GCC.
Credit monitoring:
A system that monitors a consumer’s credit reports for signs of possible fraud.
Credit monitoring services notify consumers when new information, such as a new account
or credit inquiry, shows up on one or more of their credit reports. The consumer can then
follows up and make sure the new information is legitimate. Consumers can also use a
credit monitoring service to keep track of their credit scores, a feature that can be useful for
someone who plans to apply for a mortgage or other credit-based loan in the next few
months to a year.
Internal risk management reports are presented to risk committees, containing
information on key environmental, political and economic trends across major portfolios
and countries; portfolio delinquency and loan impairment performance; and IRB portfolio
metrics including credit grade migration.
Credit risk mitigation:
Potential credit losses from any given account, customer or portfolio are mitigated
using a range of tools such as collateral, netting agreements, credit insurance, credit
derivatives and other guarantees. The reliance that can be placed on these mitigates is
carefully assessed in light of issues such as legal certainty and enforceability, market
valuation correlation and counterparty risk of the guarantor.
Where appropriate, credit derivatives are used to reduce credit risks in the portfolio.
Due to their potential impact on income volatility, such derivatives are used in a controlled
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manner with reference to their expected volatility. Collateral is held to mitigate credit risk
exposures and risk mitigation policies determine the eligibility of collateral types.
Securities:
Within Wholesale Banking, the Underwriting Committee approves the portfolio
limits and parameters by business unit for the underwriting and purchase of all predefined
securities assets to be held for sale. The Underwriting Committee is established under the
authority of the GRC. Wholesale Banking operates within set limits, which include
country, single issuer, holding period and credit grade limits.
Traded Credit Risk Management whose activities include oversight and approval
within the levels delegated by the Underwriting Committee carries out day-to-day credit
risk management activities for traded securities. Wholesale Banking Risk controls issuer
credit risk, including settlement and pre-settlement risk,, while price risk is controlled by
Group Market Risk.
The Underwriting Committee approves individual proposals to underwrite new
security issues for our clients. Where an underwritten security is held for a period longer
than the target sell-down period, the final decision on whether to sell the position rests
with the Risk function.
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