Category: Banking Content

Banking content refers to information and material related to the banking industry, financial services, and various aspects of banking operations. This content is designed to inform, educate, and guide individuals and businesses about banking products, services, regulations, and best practices.

Key topics covered in banking content include:

  1. Bank Accounts: Information about different types of bank accounts, such as savings accounts, checking accounts, certificates of deposit (CDs), and money market accounts. This may include details about account features, fees, interest rates, and how to open and manage accounts.
  2. Online and Mobile Banking: Content about digital banking services, including online banking platforms and mobile banking apps. This content may cover features like balance inquiries, fund transfers, bill payments, and mobile check deposits.
  3. Loans and Credit: Information about various types of loans offered by banks. Such as personal loans, home loans (mortgages), auto loans, and credit cards. Content may include loan eligibility, interest rates, repayment terms, and loan application processes.
  4. Investment and Wealth Management: Content related to investment products and wealth management services offered by banks. Such as mutual funds, retirement accounts, portfolio management, and financial planning.
  5. Banking Regulations and Compliance: Information about banking regulations, laws, and compliance requirements that banks must adhere to. This may include topics related to consumer protection, anti-money laundering (AML), and know-your-customer (KYC) regulations.
  6. Financial Literacy: Content aimed at promoting financial literacy and educating individuals about money management, budgeting, saving, and avoiding financial pitfalls.
  7. Business Banking: Content focused on banking services tailored to businesses, including business accounts, commercial loans, merchant services, and cash management solutions.
  8. Security and Fraud Prevention: Information about online security measures, fraud prevention tips, and how banks protect customers from identity theft and other financial scams.

Banking content is essential for customers and businesses to make informed decisions about their financial needs and to understand how to navigate the banking system effectively. It is provided by banks on their websites, in brochures, in newsletters, and through educational resources offered to customers. Additionally, financial experts and bloggers may also create banking content to share valuable insights and advice with a broader audience.

  • 7 Advantages and Disadvantages of Electronic Banking

    7 Advantages and Disadvantages of Electronic Banking

    Discover the advantages and disadvantages of electronic banking. Explore the convenience and risks of managing your finances online.

    Advantages and Disadvantages of Electronic Banking: Meaning and Definitions

    Electronic banking, also known as e-banking or internet banking, refers to the use of electronic means to conduct banking transactions and access banking services. It allows customers to manage their finances efficiently through a range of online platforms and devices, including computers, smartphones, and tablets.

    Definitions:

    1. General Definition:

      Electronic banking is a form of banking in which funds are transferred through an exchange of electronic signals rather than the exchange of cash, checks, or other types of paper documents. This can include a variety of different methods and platforms.
    2. Internet Banking:

      Internet banking is a type of electronic banking that enables customers to conduct financial transactions on a secure website operated by their bank. Users can perform tasks such as checking account balances, transferring money, paying bills, and applying for loans without visiting a branch.
    3. Mobile Banking:

      Mobile banking is a service provided by a bank or other financial institution that allows its customers to conduct a range of financial transactions remotely using a mobile device such as a smartphone or tablet. Mobile banking typically operates through specially developed apps provided by the financial institutions.
    4. Telebanking:

      Telebanking, another form of electronic banking, allows customers to perform banking transactions by telephone. It provides access to account information and allows transactions like fund transfers and bill payments via an automated service or through a live customer service representative.
    5. ATM (Automated Teller Machine) Banking:

      ATM banking is a basic form of electronic banking where customers can perform activities like withdrawing cash, checking account balances, transferring funds between accounts, and even depositing checks or cash through ATMs.

    Learn about the advantages and disadvantages of electronic banking. Find out how it can simplify your financial management while considering the potential drawbacks.

    Advantages of Electronic Banking

    Electronic banking offers numerous benefits to both customers and financial institutions, streamlining financial processes and enhancing user convenience. Here are some of the key advantages:

    1. Convenience:
      • Customers can access their accounts and perform transactions 24/7 from anywhere, without the need to visit a bank branch.
      • This level of accessibility is particularly useful for people with busy schedules or those living in remote areas.
    2. Speed and Efficiency:
      • Transactions such as fund transfers, bill payments, and account inquiries are processed quickly, often in real-time.
      • Automated processes reduce the time and effort required for routine banking tasks.
    3. Cost Savings:
      • Electronic banking can be more cost-effective for both banks and customers. Banks save on operational costs, which can translate to lower fees and charges for customers.
      • Customers save on travel costs and time associated with branch visits.
    4. Enhanced Security:
    5. Better Account Management:
      • Customers have instant access to account information, enabling them to monitor transactions and manage their finances more effectively.
      • Features like alerts and notifications help users stay informed about account activities and potential issues.
    6. Range of Services:
    7. Environmental Benefits:
      • Reduced reliance on paper statements and forms helps decrease the environmental impact associated with traditional banking.
      • Electronic banking supports sustainability initiatives by minimizing the use of physical resources.

    By leveraging these advantages, electronic banking continues to evolve, providing a more seamless and efficient banking experience for both consumers and financial institutions.

    Disadvantages of Electronic Banking

    While electronic banking offers numerous advantages, it is not without its drawbacks. Here are some of the key disadvantages:

    1. Security Concerns:
      • Despite advanced security measures, electronic banking is still vulnerable to cyberattacks such as phishing, hacking, and malware.
      • Customers may fall victim to fraud or identity theft if they do not follow proper security precautions.
    2. Technology Dependence:
    3. Limited Customer Service:
      • While electronic banking offers the convenience of self-service, complex issues or disputes may require personal interaction with bank staff, which can be challenging to address online.
      • Automated systems may not provide the same level of personalized service as human representatives.
    4. Accessibility Issues:
    5. Errors and Transaction Issues:
      • Technical glitches can lead to errors in transactions, which may result in delays or financial loss.
      • Resolving such issues can sometimes be time-consuming and stressful for customers.
    6. Privacy Concerns:
      • Personal and financial information shared online is susceptible to breaches, posing risks to user privacy.
      • There is a fear among some users about the safety of their data when using electronic banking services.
    7. Lack of Physical Presence:
      • Some banking needs, like notarizing documents or handling significant changes to an account, still require a visit to a physical branch.
      • Customers who prefer face-to-face interactions may find electronic banking impersonal and less satisfying.
    8. Dependence on Power Sources:
      • Electronic devices used for e-banking need power, and any power outage can render these services inaccessible.

    In summary, while electronic banking provides significant convenience and efficiency, it is crucial to be aware of these disadvantages and take appropriate measures to mitigate potential risks.

  • Choosing the Right High Interest Savings Account

    Choosing the Right High Interest Savings Account

    Discover the benefits and features of high interest savings accounts. Learn how they work, compare top accounts, and get tips for maximizing your returns while avoiding common pitfalls. Perfect for growing their savings with higher interest rates and easy liquidity.

    Introduction

    High interest savings accounts are specialized financial products designed to offer savers significantly higher interest rates on their deposits compared to traditional savings accounts. These accounts are an attractive option for individuals looking to maximize the growth of their savings without taking on the risks associated with investments such as stocks or mutual funds. The primary allure of a high interest savings account lies in its ability to compound interest at a higher rate, thereby accelerating the growth of the deposited funds over time.

    The main features of high interest savings accounts include competitive interest rates, often tiered based on the account balance, and minimal to no fees for maintaining the account. Unlike regular savings accounts that typically offer lower interest rates, they are structured to reward savers for keeping their money in the account for longer periods. This makes them an excellent choice for both short-term and long-term savings goals, such as building an emergency fund, saving for a large purchase, or simply growing one’s wealth.

    Another distinguishing factor of high interest savings accounts is their liquidity. While they offer higher returns, these accounts generally allow for easy access to funds, similar to regular savings accounts. Depositors can usually withdraw money without penalties, making them a versatile and secure option for those who might need to access their savings in unforeseen circumstances.

    In today’s financial landscape, where inflation can erode purchasing power, ensuring that your savings grow at a rate that outpaces inflation is crucial. They provide a practical solution by offering higher returns while maintaining the safety and security of your principal amount. This combination of higher interest rates and liquidity makes high interest savings accounts an appealing choice for those looking to enhance their savings strategy.

    How High Interest Savings Accounts Work

    High interest savings accounts are designed to offer savers a more lucrative return on their deposited funds compared to traditional savings accounts. The cornerstone of these accounts is the interest rate, which is typically higher, allowing account holders to earn more on their deposits. The interest is calculated based on the account’s balance and is often compounded on a daily, monthly, or annual basis. Daily compounding, for instance, means that interest is calculated each day and added to the account balance, effectively allowing the interest to earn additional interest over time.

    When opening a high interest savings account, there are several prerequisites to consider. Many financial institutions require a minimum initial deposit, which can vary significantly between banks. This minimum deposit ensures that the account holder is serious about saving and provides the bank with a substantial amount to invest. Additionally, maintaining a high interest savings account may come with certain fees, such as monthly maintenance fees or fees for falling below the required minimum balance. However, many banks waive these fees if the account holder meets specific criteria, such as maintaining a certain balance or setting up direct deposits.

    Understanding the fee structure and requirements associated with high interest savings accounts is crucial for maximizing the benefits. Some banks might offer tiered interest rates, where higher balances earn higher interest rates. It’s also essential to be aware of any withdrawal limitations, as excessive withdrawals could lead to penalties or reduced interest rates. By meeting the account’s requirements and understanding how interest is calculated and compounded, savers can make informed decisions that optimize their earnings and contribute to their financial goals.

    Benefits of High Interest Savings Accounts

    It offer numerous advantages for individuals seeking to optimize their savings. One of the primary benefits is the potential for higher returns compared to traditional savings accounts. By earning a higher interest rate, account holders can see their savings grow more rapidly over time, which can be particularly advantageous in a low-interest-rate environment.

    Another significant advantage is the safety and security provided by FDIC insurance. Deposits in high interest savings accounts are typically insured up to $250,000 per depositor, per insured bank, ensuring that your funds are protected even in the event of a bank failure. This level of security makes high interest savings accounts a reliable option for risk-averse savers.

    Liquidity and accessibility are also key benefits of high interest savings accounts. Unlike some investment vehicles that may tie up your money for extended periods, it allow for easy access to your funds. This makes them an ideal choice for building an emergency fund, where quick access to cash is essential. Additionally, these accounts can be used for short-term savings goals, such as saving for a vacation or a down payment on a home, due to their flexibility and convenience.

    Other benefits

    High interest savings accounts can serve a variety of financial goals. For instance, they can act as a buffer against unexpected expenses, providing a financial cushion that can help prevent debt accumulation. They also enable savers to accumulate funds for planned expenditures or future investments, all while earning higher interest than traditional savings accounts.

    In summary, the benefits of high interest savings accounts include higher returns, FDIC-insured security, and easy liquidity. These features make them an attractive option for anyone looking to maximize their savings while maintaining access and security. Whether you are building an emergency fund or saving for a near-term goal, high interest savings accounts offer a versatile and beneficial solution.

    Comparing High Interest Savings Accounts with Other Savings Options

    When evaluating various savings options, it is crucial to understand the distinguishing features of high interest savings accounts, certificates of deposit (CDs), money market accounts, and regular savings accounts. Each option presents unique advantages and disadvantages, particularly concerning interest rates, liquidity, and risk factors.

    High interest savings accounts typically offer higher interest rates compared to regular savings accounts. This feature makes them attractive for individuals looking to maximize their earnings on deposited funds. Unlike CDs, high interest savings accounts provide greater liquidity, allowing account holders to access their money without incurring penalties. However, while the interest rates are higher than regular savings accounts, they may still be lower than those offered by CDs in some cases.

    Certificates of deposit (CDs) generally offer the highest interest rates among traditional savings options but come with a trade-off in terms of liquidity. Funds deposited in a CD must remain untouched for a predetermined period, ranging from a few months to several years. Withdrawing money before the CD matures usually incurs significant penalties, making it a less flexible option compared to high interest savings accounts. CDs can be an excellent choice for individuals with a specific savings goal and a clear timeline who do not need immediate access to their funds.

    More comparings

    Money market accounts strike a balance between interest rates and liquidity. They often provide higher interest rates than regular savings accounts but may require a higher minimum balance to earn those rates. Money market accounts also offer check-writing privileges and debit card access, adding a layer of convenience. Despite this, they may still not match the flexibility of high interest savings accounts, which generally do not impose stringent balance requirements.

    Regular savings accounts are the most straightforward and accessible option, typically offering lower interest rates. They are highly liquid, with funds accessible at any time, making them suitable for individuals who prioritize ease of access over earning potential. However, for those seeking to grow their savings more substantially, high interest savings accounts or other alternatives may be more advantageous.

    In summary, the choice between high interest savings accounts, CDs, money market accounts, and regular savings accounts depends on individual financial goals, the need for liquidity, and risk tolerance. By thoroughly comparing these options, savers can make informed decisions that best suit their financial needs.

    How to Choose the Best High Interest Savings Account

    Selecting the best high interest savings account requires careful consideration of several key factors. One of the primary aspects to evaluate is the interest rate. While higher interest rates can significantly boost your savings, it’s essential to understand how the rates are compounded. Daily compounding typically yields higher returns than monthly or yearly compounding. Always compare the annual percentage yield (APY) rather than just the nominal interest rate to get a clear picture of what you will earn.

    Another crucial factor is the fee structure associated with the account. Some high interest savings accounts may have monthly maintenance fees, minimum balance requirements, or transaction fees that could quickly erode your earnings. Look for accounts with low or no fees to maximize your savings. Additionally, be aware of any penalties for early withdrawals if the account has such restrictions.

    Account accessibility is also an important consideration. Evaluate how easy it is to access your funds when needed. Some accounts may offer better online banking capabilities, allowing you to manage your money conveniently through a mobile app or website. Ensure that the account provides quick and easy access to your funds without unnecessary delays or restrictions.

    Customer choose

    Customer service is another critical aspect to consider. A bank or financial institution with excellent customer service can provide invaluable support, especially when you encounter issues or have questions about your account. Look for institutions with a reputation for responsive and helpful customer service. Reading reviews and seeking recommendations can help you gauge the quality of customer support.

    Additional features like online banking capabilities, automated savings tools, and account alerts can enhance your banking experience. These features can help you manage your savings more effectively and stay on top of your financial goals. When comparing different accounts, make sure to read the fine print carefully. Understand the terms and conditions, and be aware of any hidden fees or stipulations that could impact your savings.

    By considering these factors and conducting thorough research, you can choose a high interest savings account that best suits your financial needs and goals.

    Top High Interest Savings Accounts in the Market

    Choosing the right high interest savings account can significantly impact your financial growth. As banks and financial institutions compete to attract new customers, many offer competitive interest rates, minimal fees, and enticing incentives. Below, we review some of the top high interest savings accounts currently available, detailing their interest rates, fees, and unique features.

    1. Ally Bank Online Savings Account

    Ally Bank offers a competitive interest rate of 2.00% APY with no monthly maintenance fees. This account also features no minimum balance requirement, making it accessible to a wide range of savers. Ally’s online interface is user-friendly, and their customer service highly rated, providing an excellent overall experience for account holders.

    2. Marcus by Goldman Sachs High-Yield Online Savings

    Marcus by Goldman Sachs offers a high-yield savings account with an interest rate of 2.15% APY. This account has no fees and no minimum deposit requirement. Marcus provides easy access to funds with same-day transfers up to $100,000 to linked accounts, which is a unique feature compared to other banks.

    3. Discover Online Savings Account

    Discover Bank offers a high interest rate of 2.10% APY with no monthly fees and no minimum balance requirement. Also, Discover provides a $150 or $200 bonus for new customers who deposit a certain amount within the first 30 days. Their account includes free online bill pay and access to over 60,000 ATMs nationwide.

    4. American Express® High Yield Savings Account

    The American Express® High Yield Savings Account offers a 2.00% APY. It has no monthly fees and no minimum balance requirement. American Express known for its strong customer service and digital tools, which make managing your savings easy and efficient.

    Comparison Table

    To assist in your decision-making process, here is a comparison chart of the mentioned accounts:

    Bank Interest Rate (APY) Fees Minimum Balance Special Features
    Ally Bank 2.00% None None User-friendly interface, excellent customer service
    Marcus by Goldman Sachs 2.15% None None Same-day transfers up to $100,000
    Discover Bank 2.10% None None $150-$200 bonus, free online bill pay, extensive ATM network
    American Express 2.00% None None Strong customer service, digital tools

    These high interest savings accounts provide various benefits that can help you maximize your savings potential. Consider the interest rates, fees, and unique features to find the best option tailored to your financial needs.

    Tips for Maximizing Returns with High Interest Savings Accounts

    Maximizing returns from a high interest savings account requires strategic planning and proactive management. One of the most effective strategies is to set up automatic transfers from your primary checking account. This ensures consistent contributions to your savings, helping to grow your balance steadily over time without the risk of forgetting to transfer funds manually. Whether you choose a weekly or monthly schedule, automatic transfers can simplify the process of saving and compound your interest earnings more efficiently.

    Regularly reviewing and comparing interest rates is another crucial step. Financial institutions frequently adjust their rates, and staying informed about these changes can help you make better decisions. It’s advisable to check the interest rates offered by various banks periodically. If a more competitive rate becomes available, consider transferring your funds to that account to capitalize on higher returns. Many online platforms and financial news websites offer tools and resources for comparing interest rates, making this task more manageable.

    Additionally, keeping an eye out for better offers is essential. Banks often introduce promotional rates or special offers for new accounts. These promotions can provide a significant boost to your savings if you take advantage of them. However, be sure to read the terms and conditions carefully to understand the duration and requirements of the promotional rates.

    Staying informed and proactive in managing your high interest savings account is key to maximizing your returns. Regularly monitoring your account, being aware of market trends, and taking swift action when better opportunities arise can significantly enhance the growth of your savings. By integrating these strategies into your financial routine, you can make the most out of your high interest savings account and achieve your financial goals more effectively.

    Common Pitfalls to Avoid

    High interest savings accounts can offer significant benefits, but to maximize these advantages, individuals must navigate certain potential pitfalls. One common mistake is overlooking associated fees. While high interest savings accounts are designed to yield higher returns, they may also come with maintenance fees, withdrawal fees, or inactivity fees. These costs can significantly erode your earnings if not carefully monitored. To avoid this, thoroughly review the fee schedule before opening an account and regularly monitor your account statements for any unexpected charges.

    Another frequent error is not meeting the minimum balance requirements. Many high interest savings accounts stipulate a minimum balance to qualify for the advertised interest rate. Falling below this threshold can result in a lower interest rate or even penalty fees. To prevent this, always be aware of the minimum balance requirements and plan your finances to consistently maintain this level in your account.

    Other terms

    Ignoring the account terms is another pitfall that can impact your interest earnings. Some accounts may have tiered interest rates, meaning the interest rate varies based on the account balance. Others might have promotional rates that decrease after an introductory period. Failing to understand these terms can result in lower-than-expected returns. To avoid such surprises, carefully read the account terms and conditions and keep abreast of any changes communicated by your bank.

    Lastly, not optimizing your deposits can also be a misstep. High interest savings accounts thrive on the principle of compound interest, where interest is earned on both the initial deposit and the accumulated interest. Regularly contributing to your account can significantly enhance your earnings over time. Setting up automatic transfers from your primary checking account to your high interest savings account can help ensure consistent deposits and maximize your growth potential.

    By being mindful of these common pitfalls and implementing strategies to avoid them, you can fully harness the benefits of a high interest savings account, ensuring it remains a valuable tool for your financial growth.

  • Electronic Cash Meaning Definition Types Essay

    Electronic Cash Meaning Definition Types Essay

    Electronic cash stands mentioned as the digital savings of financial fees on a technical device representing a digital format of actual money. This transformation of the traditional paper-primarily based financial gadget considers being one of the milestone achievements of rapid technological tendencies.

    Here is the article to explain, How to define Electronic Cash with its Meaning, Definition, and Types?

    Certain powerful forces embodied with digital coins including greater privateness and safety decreased transaction, and coping with charges have allowed electronic coins to take over paper cash over the years. Despite the blessings related to digital cash, it will also have detrimental influences on positive financial factors which includes taxation and money laundering. Furthermore, the low penetration of electronic coins into the economy diagnoses to be one of the most important demanding situations digital coins will face beforehand destiny.

    Meaning and Definition of Electronic Cash;

    The World is shifting rapidly with massively converting technological trends and improvements. We are presently experiencing a technology, where everything is getting automatic and digitalized. Along with this technological transition, the global financial device is one large component that exists getting transferred from; its modern nation of a paper-primarily based economic gadget to a digital economic/coins gadget.

    According to the 1994 document of the European Central financial institution, electronic cash may define as an;

    “Electronic store of monetary value on a technical device that may widely used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument”.

    Like the serial number on fashionable greenback payments, electronic cash issued with the aid of a financial institution or another organization will even encompass a uniquely wide variety and could represent a distinctive cost of actual money. Hence with the cutting-edge accelerated section of changes and innovation, cash is becoming “digital”.

    This feel, it expresses as an;

    “Assemblage of ones and zeros which can display on millions of computer screens throughout the world can transferred at the speed of light and yet locate nowhere”.

    This study’s document will offer an evaluation of Electronic coins in the following methods. Section two will present a top-level view of the rise of electronic coins over conventional paper cash. Also, Section three will be difficult on the step-with the aid of-step method involved with the digital coins gadget.

    Section four will describe exclusive forms of digital coins; whilst phase five will provide examples of actual-international implementation of electronic coins. Furthermore, phase 6 will emphasize dangers and issues related to electronic coins; while segment 7 describes the demanding situations beforehand for digital cash.

    The development of electronic cash;

    In a financial system without a general medium of exchange, trades stood achieved based on distinctive methods. Whereas within the earliest length of human civilization humans exchanged several commodities they possess to buy the products they required. This turned into referred to as ‘commodity money’. Later on, commodity money was modified into ‘steel money’ in which people traded based on certain metals such as gold, silver, and copper. Thereafter with the progress in human civilization, ‘paper money became invented marking a milestone within the development of the economic machine.

    Even nowadays paper cash exists extensively used for transactions inside the economy. Nevertheless, economic offerings had been the early adopters of data technology, and the concept of electronic coins; which is likewise referred to as virtual cash became invented and delivered. As consistent with the monetary theories, if whatever is considered real cash, it wishes to fulfill three important capabilities. They are, it has to act as a medium of exchange, ought to have a unit of account, and need to have the potential to store cost. Therefore it changed into guaranteed that electronic currency can use as a general medium of alternate; because it fulfills all three criteria.

    Widely entry;

    Gradually electronic coins existed given widely unfolded at some point in the arena; because they embodied effective forces that contributed to their success as compared to present styles of cash. In evaluation with paper money, which uses the best physical security capabilities; digital cash use cryptography to authenticate transactions and protect the confidentiality and the integrity of facts. Whereas both the security and privacy of a transaction decide by way of digital coins. It has to also cite that banks currently incur big costs to address notes and coins. For example, within the USA alone, the clearing of cheques costs economic establishments $60 billion according to yr.

    The coping with the value of cash is an awful lot high. Hence in the digital world, those handling and transaction cost aim to lessen. Electronic coins stand considered a great accounting unit; as they can convert from one foreign money to every other, or convert into bonds or shares almost instantly. It takes up surely no room, it may count mechanically, and it in no way wears out, rusts, or tarnishes. Furthermore, digital coins advanced to paper money for remote transactions. While notes and cash need to carry in bullet-evidence vehicles manned by armed guards; digital coins may move without problems and quickly. Hence those residences have allowed digital cash to take over paper money and mark a dominating position in the monetary system.

    The process implemented electronic cash;

    The simple idea of Electronic coins implementation involves a minimum of 3 parties. They are issuers, no longer always monetary institutions, consumers as the quit-users who use the digital coins; and merchants who accept electronic coins as alternate for products or services provided. The steps involved in the procedure are as follows.

    • Consumer desires to open an account with a financial institution. The service provider who needs to participate in the digital coins transactions will open more than one bill with diverse banks to aid clients who use extraordinary banks.
    • When the client decides to purchase goods he or she will switch the digital coins from their account to his or her digital handbag. The digital coins can then transfer to the service provider. These transactions achieve through the net stand commonly encrypted.
    • Once the merchant obtained the digital cash payment, he’s going to then get it validated via the financial institution. The bank will then authenticate the digital cash transaction. Upon verification, the merchant will supply the goods to the patron. At the same time, the financial institution will debit the agreed amount from the client’s account and deposit the identical into the service provider’s account.

    Types of Electronic cash;

    Following the above technique of digital coins implementation, digital coins may categorize into two methods. In one way, electronic coins exist class-based totally on whether or not they could track or now not. Under this class, digital coins divide into “recognized digital cash” and “anonymous electronic cash”.

    Identified Electronic cash;

    Identified digital coins work greater much like a credit scorecard. From the first actual time, it’s far issued using a bank to one in all its clients, up to its final return to the bank may be without problems tracked through the financial institution. Consequently, it allows the financial institution to music the fee all through the financial system; subsequently the bank will keep every detail of who the authentic purchaser is, and how he has spent the cash.

    To make digital coins identifiable like this, digital coins carry a unique serial wide variety that generates by the financial institution itself. So that if the patron attempted to spend the equal cash greater than as soon as; it may be without difficulty stuck and averted. As in keeping with the graphical illustration shown in Figure; the steps worried with identified digital coins may index as follows.

    • The bank generates a serial number SR100, for digital cash worth $100.
    • The purchaser will purchase goods from a service provider, by using spending digital coins worth a dollar hundred and sending the corresponding digital file to the merchant.
    • The merchant will then cross return to the financial institution quit the digital coins and get real money in alternate.
    • At this point, the bank receives the digital cash with the serial number SR100 lower back. Therefore the bank is aware that the customer has spent the digital cash on a specific date to shop for a particular product from a specific service provider.
    Anonymous electronic cash;

    Anonymous electronic cash also called ‘blinded cash’ works like actual difficult cash. There isn’t any hint of ways the money became spent and there could be no trail of the transactions worried in this kind of electronic currency. The key difference between recognized digital cash and anonymous digital coins is that in the case of recognized electronic coins, the financial institution creates the serial variety; however, in the case of anonymous digital coins, the patron is the only one who creates the serial range the usage of a blind signature system. This approach that the issuing financial institution can not connect the purchaser with the serial range of the deposited cash and, in this respect, the patron’s transactions remain private. As proven in Figure the steps involved in anonymous electronic cash are as follows,

    • The purchaser will generate a random number called PQP1. From that, he creates any other wide variety known as a blind wide variety. Suppose the blind wide variety is BABC.
    • The purchaser will ship the created blind number to the financial institution.
    • The financial institution will send lower back the electronic currency with the blind variety to the client.
    • During a transaction, the consumer will now not use the blind quantity. Instead, he’s going to use the original quantity.
    • Therefore both the merchant and the financial institution will most effectively have the original number. They can not hint at the money as they’re not privy to the relationship between the blind range and the unique range.

    Other techniques;

    The second technique with the aid of which electronic cash may label is primarily based on the involvement of the bank in transactions. Based on the volume of the involvement it can further categorize as online or as offline digital cash. When it involves online electronic currency, the financial institution ought to actively participate in the transaction between the customer and the service provider. Such as earlier than the purchase transaction of a selected purchaser receives entire the merchant can verify from the bank in real-time; whether or not the electronic coins supplied by way of the client are suitable and have now not existed spent earlier than or the serial wide variety is legitimate.

    Offline electronic currency does no longer require the involvement of the bank to finish the transaction between the purchaser and service provider. If the client gives digital cash to a service provider, to pay for the purchase the service provider will receive the cash and will no longer validate it online. The merchant might acquire all of the electronic coins and validate them together at a fixed time every day.

    More things;

    Hence out of these awesome styles of digital coins; it could be visible that there may be four opportunities for digital cash. They exist identified online, identified offline, nameless online, and anonymous offline electronic currency. Out of these 4 sorts, anonymous offline digital coins creates the maximum complicated sort of digital coins due to the double-spending problem.

    Whereas if the same piece of cash stands spent two times at unique locations; it can’t exist tracked or avoided as the financial institution doesn’t always involve in any degree of the transaction. The risk of double-spending includes different varieties of electronic coins as well. But upon detection, such conditions may easily track and averted; because the financial institution is part of the transaction sooner or later between the customer and the service provider.

    Electronic Cash Meaning Definition Types Essay Image
    Electronic Cash Meaning Definition Types Essay; Image by Mudassar Iqbal from Pixabay.
  • American Express Interchange Rates Fee OptBlue Program

    American Express Interchange Rates Fee OptBlue Program

    American Express Interchange Rates Fee: How Do Their Rates and Fees Differ from Other cards? Amex’s OptBlue program interchange rates and fees; American Express Card, shortly known as Amex, is a leading brand in the US and other countries.

    Here is the article to explain, American Express Interchange Rates and Fee Differ from Other cards, Understanding Amex card OptBlue Program!

    It offers different types of cards with various features for customers to make smooth transactions. Banks and payment processing systems will charge interchange fees from merchants who process Amex card transactions. This, in turn, gives ways to reduce the fees enabling a business to save more money. 

    Understanding Amex card interchange rates;

    Amex card interchange rates and fees vary with other brands in the markets and merchants must be aware of them in detail. The main reason is that it issues credit cards to consumers without working with other companies. A merchant should sign an agreement with Amex to accept their cards. That’s why the company introduced the OptBlue program which serves as a gateway for small merchants to join the card network.    

    What is Amex’s OptBlue program?

    Amex’s OptBlue program is a unique closed system that facilitates agreements for merchants to bundle card networks with other cards such as Discover, Visa, and MasterCard. On the other hand, a payment processor will charge an additional per-transaction fee to facilitate an agreement. Interchange rates are high in this program because of the added risks. However, it is available for merchants who have a sales volume of less than $1 million per year in Amex credit card transactions. 

    Break-up of Amex’s OptBlue program interchange fees;

    Here is the break-up of Amex’s OptBlue program interchange fees as of November 2019 and they may be subject to change.

    Retail;
    • For tickets under $75, the interchange fees are 1.60 % +$ 0.10 per transaction
    • 1.95% + $0.10 per transaction for tickets above $75 and below $1000
    • 2.40% + $0.10 per transaction for tickets above $1000
    Service businesses;
    • 1.60% + $0.04 per transaction for tickets under $15
    • 1.70% + $0.10 per transaction for tickets above $15 and below $400
    • 2.00% + $0.10 per transaction for tickets above $400 and below $3000
    • 2.40% + $0.10 per transaction for tickets above $3,000
    Travel & Entertainment;
    • 2.25% + $0.10 per transaction for tickets under $100
    • 2.60% + $0.10 per transaction for tickets above $100 and below $1000
    • For tickets above $1000, the interchange fees are 3.00% + $0.10 per transaction
    Restaurant;
    • 1.60% + $0.04 per transaction for tickets under $5
    • 1.85% + $0.10 per transaction for tickets above $5.00 and below $25
    • 2.50% + $0.10 per transaction for tickets above $25 and below$150
    • 2.85% + $0.10 per transaction for tickets above $150.00
    Other fees charged by Amex cards;

    Apart from interchange fees, Amex cards charge some other fees while processing the transactions of cardholders. Some of them include:

    • A network fee of 0.15% like Visa and MasterCard
    • Amex Cross-Border of 0.40% which applies to international transactions only
    • 0.30% for keyed-in and manually-entered transactions 

    Interchange fees for Amex with a direct agreement;

    Amex offers two different interchange fee schemes for merchants who have a direct agreement with the company. Also, The first one is the discount rate plan which is identical to the OptBlue program. Another one is the flat-free plan which involves a $7.95 flat monthly fee.

    American Express Amex card Interchange Rates Fee OptBlue Program Image
    American Express Amex card Interchange Rates Fee OptBlue Program; Image by Yannick McCabe-Costa from Pixabay.
  • Interest Rate Risk in Banking Principles Management

    Interest Rate Risk in Banking Principles Management

    Interest Rate Risk in Banking, the banks define their meaning, definition, principles, example, types with Management and Business Finance; The management should be an important part of market risk management in banks. In the past, regulatory restrictions have significantly reduced many risks in the banking system. However, deregulation of interest rates has exposed them to the negative effects of interest rate risk.

    Here is the article to explain, Interest Rate Risk Management in Banking Principles Business Finance

    Interest rate risk management in banking is a potential negative impact on net interest income and is related to the vulnerability of an institution’s financial position to changes in interest rates. Changes in interest rates affect income, assets, liabilities, off-balance sheet items, and cash flows. Therefore, the objectives of interest rate risk management are to maintain profitability; the ability to increase the capacity to bear losses and ensure adequate risk compensation received, and reach a compromise between return and risk.

    The significance or meaning of interest rate risk;

    What does mean interest rate risk? Interest rate risk is the potential investment loss caused by changes in interest rates. For example, if interest rates rise, the value of bonds or other fixed-income investments falls. The change in bond prices when interest rates change knows as duration. Interest rate risk can be reduced by holding bonds with different maturities; and, investors can also reduce interest rate risk by hedging fixed-income investments with interest rate swaps, options, or other interest rate derivatives.

    Interest rate risk management aims to record the risk of non-adherence to maturity and revaluation and is measured in terms of both profit and economic value. The bank’s net interest income (NII) or net interest margin (NIM) depends on the development of interest rates. Any difference in cash flows (fixed assets or liabilities) or revaluation dates (moving assets or liabilities) will make the NII or NIM of the bank fluctuate. Returns on assets and prices of liabilities are now closely related to the volatility of market interest rates.

    The profit perspective includes an analysis of the effect of changes in interest rates on fees or reported earnings shortly. This measure by measuring changes in Net Interest Income (NII); which is the difference between total interest income and total interest expense. The economic outlook includes an analysis of the expected cash flows from assets minus the expected cash flows from liabilities plus net cash flows or balance sheet items. The economic outlook determines the risk value of the difference in long-term interest rates.

    Determination or Definition of interest rate risk in banking;

    Interest rate risk defines as the risk of changes in asset value due to interest rate volatility. It makes the security in question uncompetitive or increases its value. Although risk should arise from an unexpected move, investors are generally concerned about reducing risk. This risk directly affects holders of fixed-income securities. If the interest rate rises, the price of fixed-income security falls and vice versa.

    It banking book describes the risk to bank capital, management; and, gains from adverse interest rate developments that affect positions in the banking book. Any changes in interest rates will affect the present value of the bank’s future cash flows. This affects the basic value of the bank’s assets, liabilities, and off-balance sheet. This causes a change in its economic value. When interest rates change, it affects the bank’s bottom line, as net interest income (NII) changes; which depends on interest-sensitive income and expenses.

    Interest rate risk is the potential that changes in overall interest rates will reduce the value of bonds or other fixed-income investments:

    • If interest rates rise, bond prices fall and vice versa. This means that the market price of existing bonds will fall to offset the prices of new, more attractive bonds.
    • Interest rate risk measure by the duration of fixed-income securities, with long-term bonds being more sensitive to price changes.
    • Interest rate risk can reduce by diversifying the terms of the bonds or hedging with interest rate derivatives.

    Understanding risk opportunities;

    The feedback between interest rates and bond prices can explain by the possibility of risk. By buying bonds, investors accept that if interest rates rise; they will relinquish the option to buy bonds with more attractive yields. When interest rates rise, the demand for existing bonds with lower yields decreases as new investment opportunities arise (for example, new bonds with higher yields issue). Although fluctuations in interest rates affect the prices of all bonds, the rate of change varies between bonds.

    Different bonds show different price sensitivity to interest rate fluctuations. It is therefore important to assess the duration of a bond when assessing interest rate risk. Bonds with shorter maturities usually involve lower interest rate risk than bonds with longer maturities. With longer-term bonds, interest rates are more likely to change. Therefore, they bear the risk of higher interest rate changes.

    The principle of interest rate risk in banking;

    The Basel Committee has established the following principles for measuring and managing interest rate risk. Part one below are;

    • Risks critical to all banks must specifically identified, measured, monitored, and controlled. In addition, banks must monitor and assess CSRBB (Credit Spread Risk in the banking book).
    • The governance body of each bank is responsible for overseeing the IT governance framework and the bank’s risk appetite for IRRB. Their monitoring and management may delegate by senior management, experts, or an asset-liability management committee. Banks must have an adequate IT governance framework, including periodic independent reviews and assessments of system effectiveness.
    • Bank’s risk appetite must formulate in terms of risk, both economic value, and profit. Banks should apply policy limits to keep their exposure in line with their risk appetite.
    • Your measurements should be based on the results of economic values ​​and income-based metrics derived from abroad and a precise set of interest rate shock and pressure scenarios.
    • When measuring IRRB, the most important behavioral and model assumptions should fully understand, conceptually justified and documented. These assumptions must rigorously examine and consistent with the bank’s business strategy.
    • The measurement systems and models used should be based on accurate data and subject to appropriate documentation, tests, and controls to ensure the accuracy of calculations. The model used to measure it must be comprehensive and covered by the management process to control the risk model, including a validation function that is independent of the development process.
    Part two below are;
    • The results of your hedging assessments and strategies should report regularly to the management body or its agents at the appropriate aggregation level (by consolidation level and currency).
    • Information on exposure levels and measurement and control practices should regularly disclose to the public.
    • Capital adequacy should specifically consider as part of the Authority’s Approved Capital Adequacy Assessment Process (ICAAP) in line with the bank’s risk appetite for IRRB.
    • Supervisors should regularly obtain sufficient information from banks to monitor trends in bank credit exposure, assess the soundness of bank governance, and identify additional banks that require review and/or additional regulatory capital.
    • Supervisors should regularly evaluate this and the effectiveness of the approach banks use to identify, measure, monitor, and control IRRB. Regulators should use dedicated resources to support such assessments. The supervisory authorities should cooperate and exchange information with the competent supervisory authorities in other jurisdictions regarding the supervision of banking exposures.
    • Supervisors should publish their criteria to further identify banks. Banks identified as having extraordinary value should consider as potential illegal IRRB holders. If a bank’s exposure review reveals inadequate management or excessive risk to capital, earnings, or overall risk profile, regulators should require measures to reduce risk and/or capital gain.

    How high is the detailed interest rate risk in banking?

    In detail Interest rate risk in banks the risk due to changes in market interest rates which can harm the bank’s financial position, management. Changes in interest rates have a direct impact on bank profits through a decrease in net interest income (NII). Ultimately, the potential long-term effects of changes in interest rates will have an impact on the underlying economic value of bank assets, liabilities, and off-balance sheet items. Interest rate risk seen from these two perspectives refers to as “Profit Outlook” or “Economic Value Outlook”.

    Simply put, a high percentage of fixed-income assets means that raising interest rates will not increase interest income (because interest rates fix), and lowering interest rates will not reduce interest income either. The low proportion of fixed assets has the opposite effect.

    For the classification of securities in the trading book, the bank has set guidelines for volume, minimum period, holding period, duration, stop loss, rating standards, etc. The interest rate sensitivity declaration makes by the bank. Regulatory restrictions have been imposed on gaps in total assets, income, or equity.

    Interest rates explain using examples;

    For example, a bank accepts 13% long-term deposits and uses a 17% down payment. If the market interest rate falls by 1%; it must decrease the down payment rate by 1%, because advances revalue every three months. However, it will not be able to reduce the fixed time deposit interest. This will reduce the bank’s net interest income by 1%.

    Or let’s say the bank has a 90-day deposit of 9% in a 12% annual bond. If the market interest rate rises by 1%, the bank must renew the deposit after 90 days at a higher interest rate. However, it still receives interest from the old bond interest rates. And in this case, net interest income fell by 1%.

    Examples of interest rate risk;

    Let’s understand interest rate risk using an example.

    If the investor has invested a certain amount in a fixed rate of interest, the bond will be at its current price; which offers a 5% coupon; and, if the interest rate then rises to 6%, the bond price will fall. This is because bonds offer a 5% interest rate while the market offers a 6% yield. If the investor wants to sell these bonds in the market, then the buyer will offer a lower amount for the bonds; because these bonds have low yields compared to the market. New investors will try to achieve a return similar to the market because the amount invested is lower.

    In other words, the opportunity cost of earning better returns elsewhere increases as interest rates increase. Therefore, this leads to a decrease in the price of the binding. There are several ways to counter interest rate risk. One can buy interest rate swaps, buy calls or place options on securities, or invest in negatively correlated securities to hedge risk.

    The effect of changes in interest rates on bonds;

    Changes in interest rates have different effects on bonds with different maturities. The correlation between interest rate movements and price movements increases with increasing maturity. Because if interest rates rise, bonds with longer maturities will suffer longer from lower interest rates than bonds with shorter maturities. For this reason, investing in bonds with different maturities use as a hedging technique to combat interest rate risk.

    Changes in interest rates affect coupon bonds and no-coupon bonds differently. If we look at two types of bonds with the same maturities; they will see a sharper decline in the price of a no-coupon bond compared to a coupon bond due to rising interest rates. This is because, with zero-coupon bonds, the full amount must receive at the end of the specified term and thus increases the effective duration; whereas with coupon bonds, returns generate periodically and thus the effective payment reduces the duration.

    Interest rate risk also affects by interest rates. Bonds with lower interest rates carry a higher interest rate risk than bonds with higher interest rates. This is because small changes in the market rate can easily overwhelm the lower rate and lower the bond’s market price.

    Types of interest rate risk in banking;

    The various following types of interest rate risk in banking identified below are:

    Price Risk:

    Price risk arises when an asset sale before a specified maturity. In financial markets, bond prices and yields are inversely related. Price risk closely ties to the trading book, which should benefit from short-term interest rate movements. Therefore, banks that have active trading portfolios should formulate guidelines for limiting portfolio size, holding period, duration, offset period, stop loss limit, market marking, etc. This is the risk of changes in the price of a security that could result in an unexpected gain or loss on the sale of the security.

    Reinvestment or Investment Risk:

    Uncertainty about the rate at which future cash flows can reinvest knows as reinvestment risk. Any difference in cash flow will expose the bank to fluctuations in NII because market interest rates move in different directions. This refers to the risk of changes in interest rates that could lead to a lack of ability to reinvest at current interest rates. Also, It divides into 2 parts.

    • Duration of risk; This refers to the risk that arises from the possibility that you will not want to repay or extend an investment early after a predetermined period of time.
    • Main or Basis risks; This refers to the risk of not experiencing a reversal of changes in the interest rates of securities with an inverse characteristic.
    Interest Rate Risk in Banking Principles Management Finance Image
    Interest Rate Risk in Banking Principles Management Finance; Image by Gerd Altmann from Pixabay.
  • Corporate Banking: Meaning Characteristics Importance Advantages

    Corporate Banking: Meaning Characteristics Importance Advantages

    What is Corporate Banking? Corporate banking is a significant division of commercial banks. This is a relatively new concept that has been adopted by many banks. This article explains Corporate Banking with its topic of Meaning, Definition, Characteristics, Bank list, Difference, Importance, and Advantages. Corporate banking is a subset of business banking that involves a range of banking services that offer only to corporates. The services include the provision of credit, cash management facilities, etc. Many business owners may go as far as using a different bank for their corporate account to ensure funds are not being muddled up. Furthermore, most companies require that you open a corporate account for the value proposition of your business to become valid.

    Here are explain Corporate Banking: Meaning, Definition, Characteristics, Bank list, Difference, Importance, and Advantages.

    Corporate banking also refers to business banking that identifies with the items and services that include loaning or credits between the bank and the bank’s client. The corporate banking segment of banks typically serves a diverse clientele, ranging from small-to-mid-sized local businesses with a few million in revenues to large conglomerates with billions in sales and offices across the country.

    Definition of Corporate Banking:

    By ICICI Bank, “They offer corporates a wide range of products and services, the technologies to leverage them anytime, anywhere and the expertise to customize them to client-specific requirements. From cash management to corporate finance, from forex to acquisition financing; they provide you with end-to-end services for all your banking needs.”

    According to my accounting course as;

    “Corporate banking is the tailor-made financial services that financial institutions offer to corporations in the context of corporate financing and raise capital.”

    What is the definition of corporate banking? Typically, corporate banking is a specialized division of a commercial bank that offers various banking solutions; such as credit management, asset management, cash management, and underwriting to large corporations as well as to small and medium-sized enterprises (SMEs). Corporate banks might be offering similar services to retail banks; however, the major distinction is the clientele and the amount of money and profit involved.

    Characteristics of Corporate Banking:

    The following characteristics of corporate banking below are;

    1. Clientele or Customer: A bank’s business banking unit usually serves small to middle-sized businesses and large conglomerates.
    2. Authority: A company’s corporate banking accounts can only be opened after obtaining consensus from the board of directors of the company. It means that they must authorize by an official vote or a corporate resolution. As well as, the company’s treasurer usually opens corporate accounts.
    3. Liability: Since companies are recognized as separate legal entities under the law, all contents of corporate accounts are the property of the company and not of the individual board members. It means that there is a certain degree of independence in corporate accounts. It also indicates that the personal creditors of the board of directors are not entitled to the contents of the corporate account of a company.
    4. Credit rating: The conduct or functioning of the corporate account forms part of the credit history of the company. It affects the valuation and share prices of the company, the interest rates applicable to loans extended to the company, etc.
    5. Bankers: Corporate banking requires a degree of expertise in the industry. Thus, corporate bankers are extremely well paid. JP Morgan Chase, Bank of America Merrill Lynch, and Goldman Sachs are some of the largest commercial banks in the world.

    Bank list for Commercial and Corporate Banking in India:

    The following bank list by NSDL below are;

    Bank Name (A-Z): Allahabad Bank, Andhra Bank, Axis Bank, Bank of Bahrain and Kuwait, Bank of Baroda – Corporate Banking, Bank of Baroda – Retail Banking, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, City Union Bank, Corporation Bank, Deutsche Bank, Development Credit Bank, Dhanlaxmi Bank, Federal Bank, ICICI Bank, IDBI Bank, Indian Bank, Indian Overseas Bank, IndusInd Bank, ING Vysya Bank, Jammu & Kashmir Bank, Karnataka Bank Ltd, Karur Vysya Bank, Kotak Bank, Laxmi Vilas Bank, Oriental Bank of Commerce, Punjab National Bank – Corporate Banking, Punjab National Bank – Retail Banking, Punjab & Sind Bank, Shamrao Vitthal Co-operative Bank, South Indian Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of India, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, Syndicate Bank, Tamilnad Mercantile Bank Ltd., UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank, and Yes Bank Ltd…

    The Difference Between Retail Banking And Corporate Banking:

    Retail Banking and Corporate Banking make up the two very essential components of the field of finance. While retail banking mainly deals with individual customers, corporate banking focuses more on the corporate world. Apart from these, there are quite a few other differences between the two that will highlight in this article. The following difference between Retail and Corporate Banking provided and referenced by medium.com below are;

    Very popularly known as consumer banking or personal banking, retail banking consider the more visible face of banking to the general public. The most vibrant character of this branch is the presence of numerous bank branches all over the major cities. Usually, there is no, one specific bank which only focuses on catering to the needs of the general public, usually, banks have branches that specialize in this field. Whereas on the other hand, corporate banking stands very popularly known as, business banking. It is meant to highlight that aspect of banking, which solely deals with corporate customers. This type of banking is popularly known to be the key profit center, for most banks in the USA as well as other nations.

    In terms of products and services, both branches differ widely. While on one hand, retail banking offers several services like checking and savings accounts, certificates of deposit and Guaranteed Investment Certificates, Mortgages on residential as well as investment properties, automobile financing, credit cards, lines of credit, foreign currency, and remittance services. Apart from these services, there are a few more targeted services, that stand generally offered through another division; or, an affiliate of the bank, stock brokerage, Insurance, Wealth Management, Private Banking, and so on.

    Continually;

    On the other hand, the corporate banking segment of the banking sector usually says to deal with clients on a varied scale. Here the clients usually range from small to mid-sized local business firms, to huge conglomerates with billions in sales. It is the commercial banks, which usually offer a range of corporate banking products and services like loans and other credit products, which is by far the biggest area of business for corporate banks. Other services include treasury and cash management services, equipment lending, treasury and cash management, commercial real estate, trade finance, employer services, and so on.

    While these two branches may have their differences, they are equally important for the economy, both on a domestic as well as a global level. Retail Banking usually is responsible for bringing in, large customer deposits, that enable banks to make loans to their retail and business customers. Whereas on the other hand, it is the commercial banks, which help in making the loans to enable businesses to grow as well as hire more people, thus in a way contributing to the economy of any particular country. Despite their differences, both of these fields stand highly preferred as career options, by several finance aspirants. To get their dream career and jobs, a lot of candidates go a step ahead and seek to get industry-relevant education, by opting for several certification programs, offered by Imarticus Learning.

    Need and Importance of Corporate Banking:

    The following need and importance of corporate banking below are;

    Safe Accounting:

    As a start-up, it is vital to account for every naira to effectively help you track your business activities and analyze what expenses to cut down on, what areas need more investing; what revenue stream yields the highest income, and so on. It is also important to keep all invoices and receipts, to account for every business transaction carried out using the corporate account.

    Professionalism:

    How your business funds manage, directly impacts the corporate image of your company. If you are writing a check to a supplier or receiving money from a customer, checks or deposits need to address to your business name. What is the IT Professionalism in Information Technology Essay? Additionally, it will be a hassle managing the inflow or outflow of cash; if your business and personal finances do not keep separate.

    Managing Expansion:

    With a business account, you may choose to allocate money to pay employees as your staff increases in size. You can also use your corporate account to partner with other businesses, or use it for mass payments. Whatever the case is, it is convenient to transact transparently to monitor growth in your venture.

    Loan Accessibility:

    As a start-up, potential investors must perceive that your venture is running smoothly and effectively. Whether it is a bank loan or a private equity investment you are aiming for; opening a corporate account will increase your chances of accessing loans. This is because your investors can better track how the business has been running to date; before making any long-term commitments.

    Tax Audit:

    When your start-up becomes operational; there is a need to open a corporate account to keep your accounting transparent for external auditing. It will determine whether or not you should be paying taxes to the government. It will also help auditors to determine the precise amount of taxes your business should be paying; based on the net profit being generated by your company.

    Bills of Exchange:

    Companies often use bills of exchange for accounts receivables and account payables purposes. For instance, if company A agrees to pay company B at a later date, they could sign a bill of exchange for the same. Company A can then take this bill of exchange to the bank to get the bill discounted.

    Corporate Banking Meaning Characteristics Importance and Advantages Image
    Corporate Banking: Meaning, Characteristics, Importance, and Advantages, Image from Pixabay.

    Advantages of Corporate Banking:

    The following advantages of corporate banking below are;

    It is a segment of financial services necessary for corporations, like funding, capital structure, allocation of finances, and more. It is largely related to financial planning and how finances must be implemented at various stages of the business. The basic function of a bank is giving credit to its customers. It doesn’t just end there. It is the process that covers various stages from granting credit to its recovery.

    Credit management also includes setting up the terms and conditions; the policy of agreement, analysis of risk factors, and other related functions. In simple words, this segment takes care of the money owned by corporations or individuals. This segment of corporate banking directs and decides where to invest the money. Management of the cash flow of the corporates is one of the key functions of corporate banks.

    This segment ensures efficient collection, distribution, and investment of cash in an organization. It ensures efficient implementation of resources and various other financial operations. Also, Corporate banking involves a specialized loan department that oversees the process of granting loans to the corporation; compliance with the credit regulation policies, and other management-related functions. The loan department of corporate banks must ensure that they must maintain the bank’s profit.

    Reference:

    • www.myaccountingcourse.com/accounting-dictionary/corporate-banking
    • corporatefinanceinstitute.com/resources/knowledge/finance/corporate-banking/
    • tin.tin.nsdl.com/tan/Bank.html
    • medium.com/@imarticus/whats-the-difference-between-retail-banking-and-corporate-banking-5bb1e4da9e06
    • www.234finance.com/the-importance-of-a-corporate-bank-account/
    • www.enterpriseedges.com/corporate-banking-development-of-economy
  • Lending procedures and Role of development banks

    Lending procedures and Role of development banks

    A development bank is a “bank” established for “financing development”. They provide medium and long-term finance to the industrial and agricultural sectors. This article explains the Lending procedures and Role of development banks, and some points also highlight. They provide finance to both the private and public sectors. Also, Development banks are multipurpose financial institutions. They do term lending, investment in securities and other activities. They even promote saving and investment habit in the public.

    Here are the explain the Lending procedures and Role of development banks.

    As per banking subject, “Development banks are financial institutions established to lend (loan) finance (money) on the subsidized interest rate. Such lending is sanctioned to promote and develop important sectors like agriculture, industry, import-export, housing, and allied activities”.

    Features of development banks:

    A development bank has the following features or characteristics:

    • A development bank does not accept deposits from the public like commercial banks and other financial institutions who entirely depend upon saving mobilization.
    • It is a specialized financial institution that provides medium-term and long- term lending facilities.
    • It is a multipurpose financial institution. Besides providing financial help it undertakes promotional activities also. It helps enterprises from planning to the operational level.
    • The objective of these banks is to serve the public interest rather than earning profits.
    • Development banks react to the socio-economic needs of development.
    • It provides financial assistance to both private as well as public sector institutions.
    • The role of a development bank is of gap filler. When assistance from other sources is not sufficient then this channel helps. It does not compete with normal channels of finance.

    Objectives of Development Banks:

    A development bank has the following objectives;

    • Lay Foundations for Industrialization.
    • Meet Capital Needs.
    • Need for Promotional Activities, and.
    • Help Small and Medium Sectors.

    Functions of Development Banks:

    A development bank has the following functions;

    • Financial Gap Fillers.
    • Undertake Entrepreneurial Role.
    • Commercial Banking Business.
    • Joint Finance.
    • Refinance Facility.
    • Credit Guarantee, and.
    • Underwriting of Securities.

    Lending Procedures of Development Banks:

    Development banks follow a procedure for evaluating a proposal for a project. The basic objective is to check whether the applicant fulfills various conditions prescribed by the lending institution and the project is viable. The acceptance of a wrong proposal will result in the wastage of scarce resources.

    We also study their Role, but first Development banks have the following Lending Procedures;

    1. Project Appraisal and Eligibility of the Applicant.
    2. Technical Appraisal.
    3. Economic Viability.
    4. Assessing Commercial Aspects.
    5. Financial Feasibility.
    6. Managerial Competence.
    7. National Contribution.
    8. Balancing of Various Factors.
    9. Loan Sanction.
    10. Loan Disbursement, and.
    11. Follow up.

    Now, explain each one;

    Project Appraisal and Eligibility of Applicant:

    Every financial institution serves a particular area of activity or there are certain limits prescribed beyond which they cannot go. Before processing the application, it is important to find out whether the applicant is eligible under the norms of the institution or not.

    The second aspect which is looked into is to determine whether the enterprise has fulfilled various conditions prescribed by the government. In case some license is required from the government. It should have been taken or assurance is received from the licensing authority.

    After satisfying these preliminary issues the project is appraised by a team of technical financial and economic officers of the institutions from various discussions with the promoters and clarifications sought on various points.

    The bank institution considers financial assistance in the light of;

    • Guidelines for assistance to industries issued by the government or others concerned from time to time.
    • Guidelines issued by the bank, and.
    • Policy decisions of the Board of Directors of the bank.
    Technical Appraisal:

    A technical appraisal involves the study of:

    • Feasibility and suitability of technical process in Indian conditions.
    • Location, of the project about the availability of raw materials, power: water. labor, fuel, transport, communication facilities and the market for finished products.
    • The scale of operations and its suitability for the planned project.
    • The technical soundness of the projects.
    • Sources of purchasing plant and machinery and the reputation of suppliers, etc.
    • Arrangement for the disposal of factory effluent and use of bye products, if any.
    • The estimated cost of the project and probable selling price of the product, and.
    • The programmer for completing the project.
    Economic Viability:

    The economic appraisal will consider the national and industrial priorities of the project export potential of the product employment potential, the study of the market.

    Assessing Commercial Aspects:

    The examination of commercial aspects relates to the arrangements for the purchase of raw materials and the sale of finished products. If the concern has some arrangement for sale then the position of the party should assess.

    Financial Feasibility:

    The financial feasibility of a new and an existing concern will be assessed differently. The assessment for a new concern will involve;

    • The needs for fixed assets, working capital, and preliminary expenses will estimate to find out its needs.
    • The financing plans will be studied about capital structure, promoters’ contribution, debt-equity ratio.
    • Projected cash flow statements both during the construction and operation periods, and.
    • Projected profitability and the like dividend shortly.
    Managerial Competence:

    The success of concern depends upon the competence of management. Proper application of various policies will determine the success of an enterprise.

    Also, a lending institution would see the background, qualifications, business experience promoters and other persons associated with management.

    National Contribution:

    Besides commercial profitability, the national contribution .of the project is also taken into account. The role of the project in the national economy and its benefits to society in the form of good quality products, reasonable prices, employment generation, helpful in social infrastructure, etc. should be assessed. Development banks aim at the overall welfare of society.

    Balancing of Various Factors:

    Various factors should be balanced against each other. The circumstances of the individual project will help in weighing various factors. Some factors may be strong as their in-depth analysis should be avoided.

    In case a project is profitable, there will be no need to assess cash flow. Weaknesses located in certain areas may be offset by the good points in the other.

    Also, experienced management and sound economic outlook may compensate for some weaknesses in financial positions. The responsibility of lending the bank lies in balancing judiciously different considerations for arriving at a consensus.

    Loan Sanction:

    After the appraisal report on the project prepares by the bank’s officers, it places before the advisory committee consisting of experts drawn from various fields of the particular industry. If the advisory committee satisfies a tile proposal then it recommends the case to the Managing Director or Board of Directors along with its report. When the assistance sanctions hen a letter to this effect issues to the pay giving details of conditions.

    Loan Disbursement:

    The loan disburses after the execution of the loan agreement. The execution of documents of security or guarantee etc. should precede the disbursement of the loan. In case some property pledges to the bank then the title deeds of such property are properly scrutinized. The fulfillment of various conditions proceeding to disbursement will determine the time of paying the money to the party.

    Follow up:

    The job of a lending bank does note by disbursing the assistance. It has first to see whether the construction .of the project is as per schedule decided earlier. In case some delay is taking place in executing the plans then the reasons for it should be determined. Later during operations, the result should be properly followed. It should be seen whether the revenue earned by the concern will be sufficient to meet its obligations or not so a proper follow up by the bank will enable it to follow the progress of the unit.

    Lending procedures and Role of development banks
    Lending procedures and Role of development banks, Cheques administration hand #Pixabay.

    Role of development banks:

    Financial institutions provide means and mechanisms of transferring resources from those who have an excess of income over expenditure to those who can make productive use of the same.

    Also, commercial banks and investment institutions mobilize savings of people and channel them into productive uses. Financial institutions provide all types of assistant required infrastructural facilities Institutions e p economic persons who can take the development in the following ways.

    After Lending procedures the Development banks have the following role;

    1. Providing Funds.
    2. Infrastructural Facilities.
    3. Promotional Activities.
    4. Development of Backward Areas.
    5. Planned Development.
    6. Accelerating Industrialization, and.
    7. Employment Generation.

    Now, explain each one;

    Providing Funds:

    Underdeveloped countries have low levels of capital formation. Due to low incomes, people are not able to save sufficient funds which are needed for sensing up new units and also for expansion diversification and modernization of existing units.

    The persons who have the capability of starting a business but does not have requisite help approach to financial institutions for help. These institutions help a large number of persons for taking up some industrial activity.

    The addition of new industrial units and increasing the activities of existing units will certainly help in accelerating the pace of economic development. Financial institutions have large inventible funds which are used for productive purposes.

    Infrastructural Facilities:

    The economic development of a country links to the availability of infrastructural facilities. There is a need for roads, water, sewage, communication facilities, electricity, etc. Financial institutions prepare their investment policies by keeping national priorities in major and the institutions invest in those aims is which can help in increasing the development of the country.

    Also, the Indian industry and agriculture are facing an acute shortage of electricity. All India institutions are giving priority to invest funds in projects generating electricity. These investments will certainly increase the availability of electricity. Small entrepreneurs cannot spare funds for creating infrastructural facilities.

    To overcome this problem, institutions at the state level are developing industrial estates and provide sheds, having all facilities at easy installments. So financial institutions are helping in the creation of all those facilities which are essential for the development of a country.

    Promotional Activities:

    An entrepreneur faces many problems while setting up a new unit. One has to undertake a feasibility report, prepare project reports, complete registration formalities, seek approval from various agencies, etc. All these things require time, money and energy.

    Some people are not able to undertake this exercise or some do not even take initiative. Financial institutions are the expense and manpower resources for undertaking the exercise of starting a new unit. So these institutions take up this work on behalf of entrepreneurs.

    Some units may be set up jointly with some financial institutions and in that case, the formalities are completed collectively. Also, some units may not have come up had they not received promotional help from financial institutions. As well as, the promotional role of financial institutions helps increase the development of a country.

    Development of Backward Areas:

    Some areas remain neglected because facilities needed for setting up new units are not available here. The entrepreneurs set up new units at those places which are already developed. It causes an imbalance in the economic development of some areas.

    Also, to help the development of backward areas, financial institutions provide special assistance to entrepreneurs for setting up new units in these areas. IDBI, IFCI, ICICI give priority in assisting units set up in backward areas and even charge lower interest rates on lending.

    Such efforts certainly encourage entrepreneurs to set up new units in backward areas. The industrial units in these areas improve basic amenities and create employment opportunities. These measures will certainly help in increasing the economic development of backward areas.

    Planned Development:

    Financial institutions help in the planned development of the economy. Different institutions earmark their spheres of activities so that every business activity helps. Some institutions like SIDBI, SFCI’s especially help small scale sector while IFCI and SIDC’s finance large scale sector or extend loans above a certain limit.

    Some institutions help different segments like foreign trade, tourism, etc. In this way, financial institutions devise their roles and help the development in their way. Financial institutions also follow the development priorities set by central and state governments.

    They give preference to those industrial activities which have been specified in industrial policy statements and five-year plans. Financial institutions help in the overall development of the country.

    Accelerating Industrialization:

    The economic development of a country links to the level of industrialization there. The setting up of more industrial units will generate direct and indirect employment, make available goods and services in the country and help in increasing the standard of living.

    Also, Financial institutions provide requisite financial, managerial, technical help for setting up new units. In some areas, private entrepreneurs do not want to risk their funds or gestation period His long but the industries are needed for the development of the area.

    Financial institutions provide sufficient funds for their development. Since 1947, financial institutions have played a key role in accelerating the pace of industrialization. The country has progressed in almost all areas of economic development.

    Employment Generation:

    Financial institutions have helped both direct and indirect employment generation. They have employed many persons to man their offices. Besides office staff, institutions need the services of experts which help them in finalizing lending proposals. These institutions help in creating employment by financing new and existing industrial units.

    Also, they help in creating employment opportunities in backward areas by encouraging the setting up of units in those areas, Thus financial institutions have helped in creating new and better job opportunities.

    Reference:

    1. https://www.mbaknol.com/business-finance/lending-procedures-of-development-banks/
    2. https://www.mbaknol.com/business-finance/role-of-development-banks-in-financial-sector/
    3. Other information collecting from the internet.
  • Leasing: Meaning, Definition, Types, Advantages, and Disadvantages

    Leasing: Meaning, Definition, Types, Advantages, and Disadvantages

    What does a Lease (Leasing) mean? A Lease is a contract between the owner of the asset and beneficiary. This article explains the content of Leasing – Meaning, Definition, Types, Advantages, and Disadvantages; Owner of the asset calls lessor and the beneficiary calls lessee. The lessee has the right to possess and to use the asset on payment of the specified rentals over a predetermined period. Also, Learn Investment Banks with their Principle and Functions.

    The Concepts of Leasing explains as their topic of Meaning, Definition, Types, Advantages, and Disadvantages.

    Here are we can discuss the topic; Meaning of Leasing, Definition of Leasing, Types of Leasing, Advantages of Leasing, and Disadvantages of Leasing. A “Lease” is defined as a contract between a lessor and a lessee for the hire of a specific asset for a specific period on payment of specified rentals.

    The maximum period of the lease according to the law is for 99 years. Previously land or real estate, mines and quarries were taken on the lease. But now a day’s plant and equipment, modem civil aircraft and ships are taken.

    Definition of Leasing:

    Lessor: The party who is the owner of the equipment permitting the use of the same by the other party on payment of a periodical amount.

    Lessee: The party who acquires the right to use the equipment for which he pays periodically.

    Lease Rentals: This refers to the consideration received by the lessor in respect of a transaction and includes:

    • Interest in the lessor’s investment.
    • Charges have borne by the lessor. Such as repairs, maintenance, insurance, etc.
    • Depreciation, and.
    • Servicing charges.

    At present there are many leasing companies such as 1st Leasing Company, 20th Century Leasing Company which are doing quite a lot of business through leasing, It has become an important financial service and a lucrative avenue of making sizable profits by leasing companies.

    Steps involved in Leasing:

    A contract of the lease provides a person an opportunity to use an asset that belongs to another person.

    The following steps involving in a leasing transaction:

    • The lessee identifies the need for the equipment and selects the supplier.
    • The lessee approaches a leasing company or Lessor to lease the equipment needed.
    • They have to furnish the following information: 1) Name and address of the lessee. 2) Details about his business. 3) Name and address of the guarantor, if any. 4) Description of the equipment. 5) Name and address of the supplier and the quoted price. 6) Place of installation, and. 7) Duration of the lease.
    • The Lessor examines the proposal after receiving the particulars from the lessee and evaluates the credit-worthiness and rent-paying capacity of the lessee.
    • The Lessor and Lessee entered into the lease agreement. It contains the terms and conditions of the lease such as lease period, rental payments, details regarding renewal of lease period, cost of repair and maintenance, insurance and any other expenses, etc., and.
    • After the lease agreement signs, the Lessor requests the manufacturer to supply the asset to the lessee.

    Types of Leasing:

    After their definition the content is the following different types of leasing are discussed below:

    Financial Lease:

    This type of lease which is for a long period provides for the use of the asset during the primary lease period which devotes almost the entire life of the asset. The lessor assumes the role of a financier and hence services of repairs, maintenance, etc., are not provided by him.

    The legal title retains by the lessor who has no option to terminate the lease agreement. The principal and interest of the lessor are recouped by him during the desired payback period in the form of lease rentals.

    The finance lease also calls a capital lease is a loan in disguise. The lessor thus is typically a financial institution and does not render specialized service in connection with the asset. A financial lease is an alternative to borrowing money and buying the equipment.

    The features of the financial lease are:

    • The machinery selects from the supplier by lessee based on his requirement.
    • The lessee negotiates the terms of the purchase i.e., price, delivery, installation, warranties, maintenance, and payments.
    • The payment for purchases make by Lessor and he is the legal owner of the machinery.
    • The risk of obsolescence and responsibility for maintenance are to be borne by Lessee, and.
    • Lessee has to pay rent regularly.
    Operating Lease:

    It is where the asset not wholly amortizes during the non-cancellable period if any, of the lease and where the lessor does not rely on is profit on the rentals in the non-cancellable period.

    In this type of lease, the lessor who bears the cost of insurance, machinery, maintenance, repair costs, etc. is unable to realize the full cost of equipment and other incidental charges during the initial period of the lease. The lessee uses the asset for a specified time.

    The lessor bears the risk of obsolescence and incidental risks. Either party to the lease may termite the lease after giving due notice of the same since the asset may lease out to other willing leases.

    Operating lease is a rental agreement and its features are as follows:

    • The period of the operating lease is generally shorter than the economic life of the leased asset, and.
    • The “lessor” bears the risk of obsolescence and responsibility for the maintenance of the asset.
    Sale and Lease-Back:

    To raise funds a company may sell an asset that belongs to the lessor with whom the ownership vests from thereon. Subsequently, the lessor leases the same asset to the company (the lessee) who uses it.

    The asset thus remains with the lessee with the change in title to the lessor thus enabling the company to procure the much-needed finance. It is an agreement between the owner of the asset and the leasing company.

    First, the firm (owner) sells the asset to the Leasing Company and leases it back simultaneously. The ownership of the asset transfers to the leasing company, the company, in turn, leases it to the seller and the seller becomes a lessee.

    Sales Aid Lease:

    Under this arrangement, the lessor agrees with the manufacturer to market his product through his leasing operations, in return for which the manufacturer agrees to pay him a commission.

    Specialized Service Lease:

    In this type of agreement, the lessor provides specialized personal services in addition to providing its users.

    Small Ticket and Big Ticket Leases:

    The lease of assets in smaller value generally calls as small-ticket leases and larger value assets are called big-ticket leases.

    Cross Border Lease:

    Lease across the national frontiers calls cross broker leasing. The recent development in economic liberalization, the cross border leasing is gaining greater importance in areas like aviation, shipping and other costly assets which base likely to become absolute due to technological changes. The lease agreement makes between the persons of the two countries. Lessor and lessee are domiciled in different countries, the lease says to be the cross-border lease.

    Leasing Meaning Definition Types Advantages and Disadvantages
    Leasing: Meaning, Definition, Types, Advantages, and Disadvantages, #Pixabay.

    Advantages of Leasing:

    After their definition and types the content is the following Merits or Advantages of leasing below are:

    • The most important merit of leasing is flexibility. The leasing company modifies the arrangements to suit the requirements of the lease.
    • In the leasing deal, less documentation involves, when compared to term loans from financial institutions.
    • It is an alternative source to obtain the loan and other facilities from financial institutions. That is the reason why banking companies and financial institutions are now entering into leasing business as this method of finance is more acceptable to manufacturing units.
    • The full amount (100%) financing for the cost of equipment may make available by a leasing company. Whereas banks and other financial institutions may not provide for the same.
    Balanced Cash Outflow:

    The biggest advantage of leasing is that cash outflow or payments related to leasing are spread out over several years, hence saving the burden of one-time significant cash payment. This helps a business to maintain a steady cash-flow profile.

    Quality Assets:

    While leasing an asset, the ownership of the asset still lies with the lessor whereas the lessee just pays the rental expense. Given this agreement, it becomes plausible for a business to invest in good quality assets which might look unaffordable or expensive otherwise.

    Better usage of Capital:

    Given that a company chooses to lease over investing in an asset by purchasing, it releases capital for the business to fund its other capital needs or to save money for a better capital investment decision.

    Disadvantages of Leasing:

    In the base of their advantages is the following Demerits or disadvantages of leasing below are:

    • In leasing the cost of interest is very high.
    • The asset reverts to the owner on the termination of the lease period and the lesser lose his claim on the residual value.
    • Leasing is not useful in setting up new projects as the rentals become payable soon after the acquisition of assets.
    • The lessor generally leases out assets that are purchased by him with the help of bank credit. In the event of a default made by the lessor in making the payment to the bank, the asset would seize by the bank much to the disadvantage of the lessee.
    Limited Financial Benefits:

    If paying lease payments towards land, the business cannot benefit from any appreciation in the value of the land. The long-term lease agreement also remains a burden on the business as the agreement locks and the expenses for several years are fixed. In a case when the use of assets does not serve the requirement after some years, lease payments become a burden.

    Reduced return for Equity Holders:

    Given that lease expenses reduce the net income without any appreciation in value, it means limited returns or reduced returns for an equity shareholder. In such a case, the objective of wealth maximization for shareholders not achieves.

    Limited TAX Benefits:

    For a new start-up, the tax expense is likely to be minimal. In these circumstances, there no adds tax advantage that can derive from leasing expenses.

    References: From online content collection with the site of #efinancemanagement and #yourarticlelibrary.