Chapter 17 Commercial Banking Lending

In: Other Topics

Submitted By apavel1
Words 1278
Pages 6
Annual Percentage Rate
• Visit link on APR on moodle
• Find out other links on calculating APR
• We will go over math on Thursday
• This math will be the math for Test 4 Cash Conversion Cycle -From investopedia.com (3 definitions)
• A metric that expresses the length of time, in days, that takes for a company to convert resource inputs into cash flows
• The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers.
• This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties. -Commercial and industrial loans represent the earliest form of lending that banks varied out in their more than 2000 years of history -close to 1/5 of commercial bank loans loan portfolio is classified as business or C&I loan Short-Term Business Loans
• Self-Liquidating Inventory Loans- business loans, usually to support the purchase of inventories, in which the credit is gradually repaid by the borrowing customer as inventory is sold (60-90 days). o Usually related to the borrowers need for short term cash to finance purchases of inventory or cover production costs, the payment of taxes, interest payments on debt, and dividend payments to stock holders.
• Working Capital Loans- loans that provide business with short-term credit lasting from a few days to one year and that re often used to fund the purchase of inventories in order to put goods on shelves or to purchase raw materials. frequently working capital loan is designed to cover seasonal peaks in the business customer’s production levels and credit needs. These loans are secured by accounts rev and by pledges of inventory…...

Similar Documents

Chapter 17 a Derivsativr Solution

...17-1 CHAPTER 17 Investments ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis 1. Debt securities. 1, 2, 3, 13 1 4, 7 (a) Held-to-maturity. 4, 5, 7, 8, 10, 13, 21 1, 3 1, 2, 3, 5 1, 7 4 (b) Trading. 4, 6, 7, 8, 10, 21 4 1, 4 (c) Available-for-sale. 4, 7, 8, 9, 10, 11, 21 2, 10 4 1, 2, 3, 4, 7 1, 4 2. Bond amortization. 8, 9 1, 2, 3 3, 4, 5 1, 2, 3 3. Equity securities. 1, 12, 13, 16 4, 7 (a) Available-for-sale. 7, 10, 11, 15, 21 5, 8 6, 8, 9, 11, 12, 16 5, 6, 8, 9, 10, 11, 12 1, 2, 3 (b) Trading. 6, 7, 8, 14, 15, 21 6 6, 7, 14, 15 6, 8 1, 3 (c) Equity method. 16, 17, 18, 19, 20 7 12, 13, 16, 17 8 5, 6 4. Comprehensive income. 22 9 10 10, 12 5. Disclosures of investments. 21 8, 9 5, 9, 10, 11, 12 6. Impairments. 24 10 18 3 7. Transfers between categories. 23 1, 3, 7 *8. Derivatives 25, 26, 27, 28, 29, 30, 31, 32 19, 20, 21, 22, 23, 24 13, 14, 15, 16, 17, 18 *9. Variable Interest Entities 33, 34 *This material is dealt with in an Appendix to the chapter. 17-2 ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning Objectives Brief Exercises Exercises Problems 1. Identify the three categories of debt securities and describe the accounting and reporting treatment for each category. 1 2. Understand the procedures for discount and premium amortization on bond investments. 1, 2, 3, 4 2, 3, 4, 5 1, 2, 3, 4, 7 3. Identify the categories of equity...

Words: 16945 - Pages: 68

Chapter 17

...1. Ch. 17/7 – You conduct a survey of a sample of 25 members of this year’s graduating marketing students and find that the average GPA is 3.2. The standard deviation of the sample is 0.4. Over the last 10 years, the average GPA has been 3.0. Is the GPA of this year’s students significantly different from the long-run average? At what alpha level would it be significant? Null hypothesis H0: µ=3.0 Alternative hypothesis H1: µ≠3.0 Given the sample mean xbar=3.2, sample standard deviation s=0.4 and sample size n=25. We can use t-test. The test statistic can be computed as follows: T=(xbar-3.0)/s*sqrt(n) =(3.2-3.0)/0.4*sqrt(25) =0.2/0.4*5=2.5 Note that the degree of freedom df=25-1=24. So, we can get p-value=P(T>2.5) =0.0197 So, if we use significance level alpha = 0.02, then since p-value=0.0197<alpha=0.02, we should reject Null hypothesis H0. Hence, at a 0.02 significance level, we conclude that the GPA of this year’s students is significantly different from the long-run average. 2. Ch. 17/9 – You contact a random sample of 36 graduates of Western University and learn that their starting salaries averaged $28,000 last year. You then contact a random sample of 40 graduates from Eastern University and find that their average starting salary was $28,800. In each case, the standard deviation of the sample was $1,000. a. Test the null hypothesis that there is no difference between average salaries received by the graduates of the two schools. TO......

Words: 3567 - Pages: 15

Commercial Banking and Finance

...economy (Kopecki 2010). The activities of reduced interest rates in order to boost profits of banking sector had been closed and so banks will start to earn less on investments and loans (Kopecki 2010). Therefore, most banks are finding it hard to earn money including Citigroup, Bank of America (BAC) and JPMorgan Chase (JPM) (Kopecki 2010). When market interest rates increase, the bank’s profit will also increase as banks fund a part of their interest-earning assets with non-interest bearing liabilities, mainly demand and transaction deposits (English, Heuvel & Zakrajsek 2012). The net interest margins (NIM) is the net interest income as a percentage of average assets that is the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders relative to the amount of their assets (English 2002). The NIM falls by 17 basis points to 3.15% in Citigroup, 16 basis points to 2.77% in BAC and 26 basis points to 3.06% JPM. (A basis point of 0.01 percentage point) (Kopecki 2010). Furthermore, a reduced in NIM will lead to a drop in net interest income (NII) (Kopecki 2010). The NII was drop of $522 million at Citigroup, $849 million at BAC and $1.02 billion at JPM (Kopecki 2010). The Reserve Bank of India (RBI) stated that rising interest rate and high cost of funds could hurt the profitability of the banking sector (Business Standard 2012). This is because the credit growth is expected to slow......

Words: 3781 - Pages: 16

Banking Chapter 1

...Intermediaries are those that do not take or hold deposits. 2. What types of banks are there? How do they differ from each other? Commercial bank; one of the big distinctions between commercial banks and other depository institutions is that commercial banks are owned by stockholders who expect a profit on their investments. Savings and Loans Associations; they receive most of their deposits from individuals. Charted by either state or federal governments, these institutions grew by focusing on real-estate lending for people. Mutual Savings Bank; receive deposits primarily from individuals and concentrate also on private real- estate mortgages. Mutual savings bank or owned by depositors as well. These state charted banks are sometimes granted greater powers with regard to assets and liabilities than S&Ls but usually not as much as those of commercial banks. Credit Unions; are also owned by depositors, but there are a couple of key differences. First, users of credit unions must be members. Membership is usually based on some type of association, such as a common employer, a certain line of work, a geographical region, or even a social or religious affiliation. Second , credit unions are not-for-profit financial institutions that exists to benefit the members. 3. List and describe bank functions. The primary functions of a bank are also known as banking functions. They are the main functions of a bank these primary functions are  1. Accepting Deposits The bank......

Words: 1196 - Pages: 5

Acc Chapter 17

...Chapter 17 International Accounting and Financial Management   True / False Questions   1. The purpose of all accounting is to provide internal and external decision-makers with the financial data they need to make their decisions.  True    False   2. There are three points at which operating in a foreign currency raises accounting issues: when transactions are made in foreign currencies, when foreign subsidiaries consolidate their results to the parent company, and when debt is acquired in foreign currencies.  True    False   3. FASB 52 requires that companies record foreign currency based transactions at the spot rate at the time of the transaction.  True    False   4. Consolidation is when a company's various results are aggregated into one report.  True    False   5. The current rate translation method translates current assets at the rate in effect when they were acquired.  True    False   6. The temporal method of translation translates fixed assets at the rates in effect the day the assets were acquired.  True    False   7. Whether to use the current or temporal rates depends on the functional currency of the foreign operation.  True    False   8. Accounting is an objective, fact-based discipline and not influenced by culture.  True    False   9. Accounting standard convergence is unlikely, given the complexities of the systems, all of which would require harmonization.  True    False   10. With......

Words: 11686 - Pages: 47

Commercial Banking

...solvency. Other ways a bank can reduce and manage its credit risk is to adhere to stricter lending guidelines by only extending loans to those in a better financial situation. Credit insurance and credit derivatives “allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private investors or governments) (2)”. 3. “Optimum liquidity is achieved by balancing risks and returns. To be more specific, measures of liquidity need to be high enough to meet even unexpected changes in liquidity needs and sources (p.329).” A bank’s concern of having liquidity or the ability to convert an asset without a decrease in the price is important in the banking industry. In order to achieve such liquidity there are several things that can be evaluated such as: • The available assets easily convertible into cash. • The volatility of deposits. • The reliance of money market instruments and interest sensitive funds. • The ability to adjust rates on loans when rates on interest sensitive sources of funds fluctuate. Source: 1. http://www.nationmultimedia.com/home/2010/07/20/opinion/An-investment-strategy-for-a-rising-interest-rate--30134116.html 2. http://www.investopedia.com/ 3. Gup, E. Benton. Kolari, James W. Commercial Banking. The Management of Risk. 3rd Edition. 2005...

Words: 376 - Pages: 2

Risks Facing Commercial Banking

...Risks Affecting Commercial Banks:- Commercial banks considered as one of the main financial intermediaries in the market, therefore the factors that occurred a negative results on the commercial banks has a strongly affect upon the economic condition and securities markets as well, the risks factors that are affecting the commercial banks can be as the following :- Risks of Interest Rates:- The risk factor that's the most widespread is interest rate for the commercial banks, but commercial banks are proficient at reducing the risk of interest rates by hedging their loans against any kind of variations in the curve of interest rates in economy. To clarify the image more better to give a simple example on this, assume that one bank is making a business loans and the borrower is charged by 5%, keep in mind the current interest rate level is at 2%, so 3% is the amount of profit that the bank can achieve just in case that the interest rate level remains the same at 2% during the life-time of the loan, yet if the general interest rate level has increased up to 3% then the profit will be reduced to 2%. Although the interest rates are outside the field of commercial bank's processes, but they are required to avoid it , because it applies a risks upon the commercial banks. Risks of Default:- Generally Commercial banks are depending on loans in making money. Default borrower can be defined as people who are taking loans from the bank but they doesn't have the ability to......

Words: 590 - Pages: 3

Chapter 17

...Chapter 8 Practice Test Match the point in polar coordinates with either A, B, C, or D on the graph. 1) Solve the problem. 2) Plot the point and find other polar coordinates (r, θ_) of the point for which: (a) r > 0, -2π_ ≤_ θ_ < 0 (b) r < 0, 0 ≤_ θ_ < 2π_ (c) r > 0 2π_ ≤_ θ_ < 4π_ The polar coordinates of a point are given. Find the rectangular coordinates of the point. 3) The letters r and θ_ represent polar coordinates. Write the equation using rectangular coordinates (x, y). 4) r = 1 + 2 sin θ_ The rectangular coordinates of a point are given. Find polar coordinates for the point. 5) ( -4, 4) A) B) C) D) The letters x and y represent rectangular coordinates. Write the equation using polar coordinates (r, θ_). 6) x2 + y2 - 4x = 0 Transform the polar equation to an equation in rectangular coordinates. Then identify and graph the equation. 7) r = 2 cos θ_ Write the complex number in polar form. Express the argument in degrees, rounded to the nearest tenth, if necessary. 8) 2 + 2i Plot the complex number in the complex plane. 9) -4 + i Solve the problem. Leave your answer in polar form. 10) z = 10(cos 45 + i sin 45°) w = 5(cos 15° + i sin 15°) Find . Write the expression in the standard form a + bi. 11) Find all the complex roots. Leave your answers in polar form with the argument in degrees. 12) The complex fourth roots of -16 Use the figure below. Determine......

Words: 784 - Pages: 4

Busn: Chapter 17 Terms

...Chapter 17: Definitions Opportunity Cost | The opportunity of giving up the second-best choice when making a decision. | Absolute Advantage | The benefit a country has in a given industry when it can produce more of a product than other nations using the same amount of resources. | Comparative Advantage | The benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries. | Balance of Trade | A basic measure of the difference in value between a nation's exports and imports, including both goods and services. | Trade Surplus | Overage that occurs when the total value of a nation's exports is higher than the total value of its imports. | Trade Deficit | Shortfall that occurs when the total value of a nation's imports is higher than the total value of its exports. | Balance of Payments | A measure of the total flow of money into or out of a country. | Balance of Payments Surplus | Overage that occurs when more money flows into a nation than out of a nation. | Balance of Payments Deficit | Shortfall that occurs when more money flows out of a nation than into that nation. | Exchange Rates | A measurement of the value of one nation's currency relative to the currency of other nations. | Countertrade | International trade that involves the barter of products for products rather than for currency. | Foreign Out coming | Contracting with foreign supplies to produce products, usually at a fraction of the......

Words: 688 - Pages: 3

Chapter 17 Accounting Problems

...CHAPTER 17 Investments EXERCISE 17-2 (10–15 minutes) (a) January 1, 2013 Debt Investments $300,000 Cash $300,000 (b) December 31, 2013 Cash $36,000 Interest Revenue $36,000 (c) December 31, 2014 Cash $36,000 Interest Revenue $36,000 EXERCISE 17-5 (20–30 minutes) (a) Schedule of Interest Revenue and Bond Discount Amortization Straight-line Method 9% Bond Purchased to Yield 12% |Date |Cash Received |Interest Revenue |Bond Discount Amortization |Carrying Amount of Bonds | |1/1/13 |— |— |— |$185,589 | |12/31/13 |$18,000 |$22,804 |$4,804 |$190,393 | |12/31/14 |18,000 |$22,804 |$4,804 |$195,197 | |12/31/15 |18,000 |$22,803 |$4,803 |200,000 | **($200,000 – $185,589) ÷ 3 = $4,804 **Rounded by $1. (b) Schedule of Interest Revenue and Bond Discount Amortization Effective-Interest Method 9% Bond Purchased to Yield 12% |Date |Cash Received |Interest Revenue |Bond Discount Amortization |Carrying Amount of Bonds ......

Words: 747 - Pages: 3

Chapter 17

...parametric test to determine the statistical significance between the sample distribution mean and a population parameter. Select one: a. F statistic b. t-test c. Z distribution Incorrect d. Z test e. t distribution Feedback The correct answer is: Z test Question 16 Incorrect Mark 0 out of 1 Not flaggedFlag question Question text The null hypothesis is typically rejected when _____. Select one: a. the calculated value is smaller than the critical value b. the critical value is smaller than the calculated value c. the level of significance chosen is .05 Incorrect d. a chi-square statistic is computed e. the Z score approaches 1 Feedback The correct answer is: the critical value is smaller than the calculated value Question 17 Incorrect Mark 0 out of 1 Not flaggedFlag question Question text The most common level of significance used in hypothesis testing is _____. Select one: a. .05 b. .10 Incorrect c. .25 d. .90 e. .95 Feedback The correct answer is: .05 Question 18 Incorrect Mark 0 out of 1 Not flaggedFlag question Question text If a data difference is NOT caused only by random sampling fluctuations, and its size is important to the organizational decision maker, it is said to have _____. Select one: a. resistance b. statistical significance c. substantive significance Incorrect d. reasonable doubt e. practical significance Feedback The correct answer is: practical significance Question 19 Incorrect Mark 0 out of 1 Not......

Words: 14737 - Pages: 59

Is It Necessary to Combine Investment Banking and Commercial Banking?

...Is it necessary to combine Investment Banking and Commercial Banking? Separation of Retail Banking and Investment Banking was a hot topic with President Obama’s proposal in January 2010 regarding a ban on US Banks on retail banks from using their own funds in investments and limiting to invest their customer’s funds. This news made many to wonder whether the world is going back to replace Glass Steagall Act which was abolished in 1999.(BBC,21January2010) Glass-Steagall Act(GSA)commonly known as Banking Act 1933 made the investment banks and Commercial Banks to function separately in order to refrain Commercial Banks from greater in securities business activities. This Act prohibited Commercial Banks to underwrite securities to public while it prohibited Investment Banks to accept deposits from customers. (Investopedia,2003). Many argue that commercial banks should not involve in securities(stock/bond)market investments as commercial banks divert funds in investment banking. In other words internal transparency of movements of funds not very clear when operating as a ‘Universal Bank’. Prior to 2007-2009 financial crisis Commercial Banks were greedily involved merely because of profits in securitization business where subprime mortgages were involved. During the rise in property market in 2006,banks created and traded in securitized assets, backed by subprime mortgages. Banks became greedy of making more money through SPV(Special Purpose Vehicle)taking high risks.......

Words: 673 - Pages: 3

Depository Institutions: Commercial Banking Industry of Bangladesh

...ON DEPOSITORY INSTITUTIONS: COMMERCIAL BANKING INDUSTRY OF BANGLADESH Date of submission: 24th August 2015 Submitted to Farzana Lalarukh Associate Professor Department of Finance University of Dhaka Submitted by SL Name BBA ID Remarks 1 Sifat sadia 17-003 2 Barna Paul 17-047 3 Maghla Hossain 17-061 4 Saima Sultana 17-069 5 Nawsina Arif 17-085 Department of Finance University of Dhaka Date of Submission: 24th August, 2015 Department of Finance University of Dhaka Letter of Transmittal August 24, 2015 Farzana Lalarukh Associate Professor Department of Finance University of Dhaka Subject: Submission of Report on depository institutions: banking industry of Bangladesh. Dear Madam, It gives us enormous pleasure to submit the report on Depository institutions of Bangladesh as per the Advisor’s instruction. We expect this report to be informative as well as comprehensive as per requirement. Working with such a topic was an inspiring experience for us. We believe that the knowledge and the experience we gathered will facilitate us a lot in our future career life. With our limited knowledge, we have tried our level best to prepare the report worthwhile. Your acceptance and appreciation would surely inspire us. For any further explanations about the report, we will be gladly available to clarify the ins and outs. Sincerely, Sifat Sadia Roll no. 17-003 On behalf of Group......

Words: 9131 - Pages: 37

Commercial Banking

...EGERTON UNIVERSITY TOWN CAMPUS FACULTY OF COMMERCE DEPARTMENT OF ACCOUNTING, FINANCE & MANAGEMENT SCIENCE NAME: OCHIENG JARED OPONDO REG NO: C12/60275/09 GROUP: A FACULTY: COMMERCE COURSE: BCOM 330; Financial Institutions and markets TASK: TERM PAPER TITLE: COMMERCIAL BANKING IN KENYA PRESENTED TO: MRS. BOSIRE MARY PRESENTED ON: 19TH October 2011 ABSTRACT: This term paper analyses the commercial banking system in Kenya. In particular it focuses on the history of commercial banks from a general perspective then narrows down to Kenya’s context. It looks at the importance of commercial banks in Kenya, the roles/functions of commercial banks. It then focuses on the regulations that govern the commercial banks. Lastly it looks at the contribution of commercial banks to Kenya’s economy. TABLE OF CONTENTS Abstract 2 Table of contents 3 Introduction 4 The history and development of commercial banks 5 Importance of commercial banks 9 Roles of commercial banks 10 Regulations of commercial banks 13 Contribution of commercial banks to Kenya’s economy 14 Emerging trends in banking 17 Summary 18 References 18 INTRODUCTION A commercial bank is a type of financial intermediary and a type of bank. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are......

Words: 4777 - Pages: 20

Green Banking Practices of Commercial Banks in Bangladesh

...Chapter- 1 Introduction and Design of the chapter ▪ Introduction ▪ Scope of the study ▪ Objectives of the study ▪ Methodology ▪ Limitation of the study 1.1 Introduction: A bank is a financial institution, where people secure their money and use this institution as a source of possible finance. Banking in the form in which it exists nowadays is comparatively of recent origin. Before the advent of modern banking, direct finance, where the owner of capital deals directly with the user of capital, was the customary mode of transference of funds from savers to investors. Now, banks are engaged in various functions i.e., receiving, collecting, transferring, paying, lending, investing, dealing, exchanging, and servicing money and claims to money both locally and internationally. Bangladesh is a country suffering from immense social, political, economic and environmental issues and these issues need to be addressed for the overall development of this country. However, we all know that the people of the whole world are concerned about the environmental degradation, especially the rising of global temperature and thereby melting of glaciers and ice-berg in the polar region and consequently rising of sea level, which will directly affect the low lying......

Words: 17335 - Pages: 70