Task 2. Comment on the following quotations.1.Banking gives you a glimpse into what makes companies succeed and what makes companies fail.(Sally Jewell)
BANKING PRODUCTS AND SERVICES Part I Banks, as financial intermediators, act as the go-between for individuals and businesses that have extra money and those that wish to borrow money. The modern bank performs the following functions: thrift, credit, payment, cash management, underwriting, investment/ planning, brokerage, insurance and trust. Banks today offer a wealth of products and services including numerous bank accounts. The accounts with credit balances held with the bank are called deposits. There are two major categories of deposit accounts in the USA: transaction accounts and savings accounts. Transaction accounts are established for the convenience of the account holder. Funds in a transaction account can be accessed without notice to the bank or withdrawn at any time without penalty. This kind of an account is a current one and its most common use for individuals is a single regular payment in either a weekly wage or a monthly salary and regular payments out to meet the normal everyday expenses. Most payments are still made by check although the use of the standing order or the direct debit is becoming very common. Normally transaction accounts include non-interest earning checking accounts and interest earning checking accounts. A demand deposit account does not pat interest and is commonly known as checking account because it is a sum standing to the credit of the customer which the bank undertakes to meet checks drawn against them or as cash across the counter. A demand deposit does not have a withdrawal advance notice requirement, there is no maturity period required before funds can be withdrawn and it is payable on demand. Negotiable orders of withdrawal accounts (NOWaccounts) frequently known as interest checking or gold checking normally pay interest but the interest rate on NOWaccounts is usually relatively low when compared to savings accounts. Since money in a transaction account either does not attract interest or it is very low it is not a good idea to maintain large cash balances, these would be better transferred to a savings account or to an alternative form of savings. If customer of a bank who has opened a savings account also has a current account regular payments into a deposit account can be made through a standing order to the bank who will automatically transfer the agreed amount according to your instructions. An example of savings accounts is a time deposit account (such as a Certificate of Deposit [CDs]). Time deposits always have the exact maturity date that is always disclosed in advance and agreed to by both parties. Interest is paid on the deposit balance after the maturity date or when specified in the account contract. If the deposit is automatically renewable, this fact must be clearly marked on the written contract along with the terms of renewal. Many account holders automatically renew their CDs when they reach maturity because they do not yet need the money on deposit. The presence of an early withdrawal penalty is a key element of time deposit accounts. Granting credits to qualified borrowers is another economic function of banks. There are two ways in which you can borrow: to spend more money than you have in your current account i.e. to overdraw or to get a loan. If a manager permits an overdraft on current account he is likely to set a limit to the size of the overdraft and may stipulate the date by which the account is back in credit. Of course, a bank charges interest on the overdrawn amount. If a loan is granted it will be a fixed sum immediately available for a fixed period of time. The principal and the interest on it may all become due for repayment at the end of that period or repaid in equal regular installments over the period of the loan. The two major categories of loans are business and consumer. Business loans can be secured or unsecured and are primarily classified into three categories: short term, long term, and a line of credit. Short-term business loans typically have a term of less than one year and may be used for purposes such as purchasing inventory or for a seasonal need. Long-term business loans are made for a term longer than one year and may be used for purposes such as expanding a business or purchasing equipment. They are usually repaid from business income in installments. A line of credit is essentially a preapproved credit limit against which the business borrows. A line of credit can be closed or open end. In a closed-end line of credit, the business borrows and repays the funds within a certain time limit. In an open-end line of credit, the business can borrow any amount up to the approved limit, make repayments, and borrow again up to the limit. Consumer loans include installment credit and mortgage loans. Installment credit whether it is secured or unsecured is essentially a loan or credit account on which the payments (including interest) are made at regular intervals. If the interest rate is fixed for a set term (such as a car loan), the payments are for a fixed amount, and the loan amount and interest are fully repaid by the end of the term. Loans with real estate as the security for loan repayment typically used to purchase a home are commonly called mortgage loans. Banks also make loans of reserves to other banks through the federal funds market and to securities dealers through repurchase agreements. Far more important in dollar value, however, are direct loans to both businesses and individuals.
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