8/10/2019 Securities Issued by Banks
1/33
8/10/2019 Securities Issued by Banks
2/33
A commercial bank is a type of retail bank
that provides services, such as accepting
deposits, giving business loans and basic
investment products.Commercial banks perform many functions.
Recently banks are widening their functions
and are becoming more customer friendly.
The functions of commercial banks aredivided into two categories: primary
functions and the secondary functions.
8/10/2019 Securities Issued by Banks
3/33
Commercial banks accept various types of
deposits from public especially from its clients,
including saving account deposits, recurring
account deposits, and fixed deposits.
Commercial banks provide loans and advances of
various forms, including an overdraft facility,
cash credit, bill discounting, etc.
Credit creation is most significant function of
commercial banks. While sanctioning a loan to acustomer, they do not provide cash to the
borrower. Instead, they open a deposit account
from which the borrower can withdraw.
8/10/2019 Securities Issued by Banks
4/33
Fixed deposit
It is a deposit which remains with the banker for acertain fixed period. The term of deposit varies fromthree months to five years.
Savings Account
The object of this account is to mobilize small savingsfrom general public. Withdrawal of money from thisaccount is restricted to a certain number of time.Customers earn fair amount of interest which isgenerally allowed on monthly basis.
Current AccountAccount for the purpose of providing frequent access to
funds on demand quickly. No notice is required towithdraw the money. Cheque leaves & ATM facilityare provided for withdrawing money to thecustomers.
8/10/2019 Securities Issued by Banks
5/33
To collect and clear cheque, dividends and interestwarrant.
To make payments of rent, insurance premium, etc.
To deal in foreign exchange transactions.
To purchase and sell securities. To act as trusty, attorney, correspondent and
executor.
To accept tax proceeds and tax returns.
To provide money transfer facility. To issue traveller's cheque.
To provide merchant banking facility.
To provide various cards: credit cards, debit cards,smart cards, etc.
8/10/2019 Securities Issued by Banks
6/33
Bank notes
Bank drafts
Credit cards
Smart cards
Travellers cheque
Bankers acceptance
Certificate of deposit
8/10/2019 Securities Issued by Banks
7/33
A banknote is a type of negotiable
instrument known as a promissory note, made by
a bank, payable to the bearer on demand.
When banknotes were first introduced, they
were, in effect, a promise to pay the bearer
in coins, but gradually became a substitute for
the coins and a form of money in their own right.
Banknotes were originally issued by commercial
banks, but since their general acceptance as aform of money, most countries have assigned the
responsibility for issuing national banknotes to
a central bank.
8/10/2019 Securities Issued by Banks
8/33
The idea of a using durable light-weight substance asevidence of a promise to pay a bearer on demandoriginated in China during the Han Dynasty in 118 BC,and was made of leather.
The first known banknote was first developed in
China during the Tang and Song dynasties, starting inthe 7th century.
Its roots were in merchant receipts of deposit duringthe Tang Dynastyas merchants and wholesalers desired to avoid theheavy bulk of copper coinage in large commercial
transactions. In Europe, the concept of banknotes was first
introduced during the 13th century by travelers suchas Marco Polo, with proper banknotes appearing in17th century Sweden.
8/10/2019 Securities Issued by Banks
9/33
Prior to the introduction of banknotes, preciousor semi-precious metals minted into coins werewidely used as a medium of exchange.
Banknotes were originally a claim for the coins
held by the bank. Due to the ease with which they could be
transferred and the confidence that people hadin the capacity of the bank to settle the notes incoins, they gradually became a means ofexchange in their own right.
Banknotes have a natural advantage over coinsbecause they are lighter to carry but are alsoless durable.
8/10/2019 Securities Issued by Banks
10/33
Generally, a central bank or treasury is solelyresponsible within a state for the issue of banknotes.
In the United States, commercial banks wereauthorized to issue banknotes from 1863 to 1935.
The issuing bank would stamp its name and promiseto pay, along with the signatures of its president andcashier on a preprinted note.
In a small number of countries, private banknoteissue continues even today.
Eg:- In the United Kingdom, certain commercialbanks in two of the union's four constituentcountries (Scotland and Northern Ireland) continue toprint their own banknotes for domestic circulation
8/10/2019 Securities Issued by Banks
11/33
A type of cheque where the payment is
guaranteed to be available by issuing bank.
Banks will review the bank draft requester's
account to see if sufficient funds areavailable for the cheque to clear.
Once it has been confirmed that sufficient
funds are available, the bank effectively sets
aside the funds from the person's account tobe given out when the bank draft is used.
8/10/2019 Securities Issued by Banks
12/33
(1) It is a very useful instrument for settlement of debts. A
debtor by purchasing a draft from a bank and sending it tothe creditor can clear the debt owned by him.
(2) The bankers drafts are used for remitting funds abroadas well as within the country.
(3) A payment through bankers draft can be made by AirMail Transfer (A.M.T.) or a Telegraphic Transfer (T.T.). Thepayment through T.T., though expensive, can be effectedwithin a few hours of dispatch.
(4) A draft is a very reliable and authenticated instrumentof credit for remitting money.
(5) The settlement of payment by draft has greatly helpedin the financing of domestic as well as foreign trade.
8/10/2019 Securities Issued by Banks
13/33
A credit card is a payment card issued to
users as a system of payment.
It allows the cardholder to pay for goods and
services based on the holder's promise to payfor them.
The issuer of the card creates a revolving
account and grants a line of credit to
the consumer from which the user canborrow money for payment to a merchant or
as a cash advance to the user.
http://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Credit_card8/10/2019 Securities Issued by Banks
14/33
The concept of using a card for purchases was
described in 1887 by Edward Bellamy in his utopian
novel Looking Backward. Bellamy used the
term credit cardeleven times in this novel.
The modern credit card was the successor of avariety of merchant credit schemes.
It was first used in the 1920s, in the United States,
specifically to sell fuel to a growing number
of automobile owners.
In 1938 several companies started to accept each
other's cards. Western Union had begun issuing
charge cards to its frequent customers in 1921. Some
charge cards were printed on paper card stock.
8/10/2019 Securities Issued by Banks
15/33
Credit cards are issued by a credit card
issuer, such as a bank or credit union, after
an account has been approved by the credit
provider.
Cardholders can use it to make purchases
at merchants accepting that card.
Merchants often advertise which cards they
accept by displaying acceptance marks generally derived from logos or may
communicate this orally.
8/10/2019 Securities Issued by Banks
16/33
When a purchase is made, the credit card user
agrees to pay the card issuer.
The cardholder indicates consent to pay by
signing a receipt with a record of the card
details and indicating the amount to be paid or
by entering a personal identification
number (PIN).
Electronic verification systems allow merchants
to verify in a few seconds that the card is validand the credit card customer has sufficient
credit to cover the purchase, allowing the
verification to happen at time of purchase.
8/10/2019 Securities Issued by Banks
17/33
The main benefit to each customer is
convenience.
A credit card allows small short-term loans to
be quickly made to a customer who need notcalculate a balance remaining before every
transaction, provided the total charges do
not exceed the maximum credit line for the
card. Credit cards also provide more fraudprotection than debit cards.
8/10/2019 Securities Issued by Banks
18/33
Cardholder: The holder of the card used to
make a purchase; the consumer.
Card-issuing bank: The financial institution or
other organization that issued the credit cardto the cardholder.
Merchant: The individual or business
accepting credit card payments for products
or services sold to the cardholder. Acquiring bank: The financial institution
accepting payment for the products or
services on behalf of the merchant.
8/10/2019 Securities Issued by Banks
19/33
Independent sales organization: Resellers (to
merchants) of the services of the acquiring
bank.
8/10/2019 Securities Issued by Banks
20/33
Premium Credit Cards, Cash Back
Credit,Cards Gold Credit Cards, Airline Credit
Cards, Silver Credit Cards, Business Credit
Cards, Balance Transfer Credit Cards, Co-
branded Credit Cards, Low Interest Credit
Cards, Lifetime Free Credit Cards.
8/10/2019 Securities Issued by Banks
21/33
A small plastic card embedded with an IC chip.
A microprocessor capable of securely storing andprocessing information.
Smart Card has its origin in 1970s by inventors
from Germany, Japan and France. Until mid 80s most of the work on Smart Cards
was at the research and development level.
First use was with the integration of microchips
into all French debit cards. The major boom in smart card use came in the
1990s, with the introduction of the smart-card-based SIM used in GSM mobile phone.
8/10/2019 Securities Issued by Banks
22/33
The benefits of smart cards are directly related
to the volume of information and applications
that are programmed for use.
A single contact/contactless smart card can be
programmed with multiple banking credentials,
medical entitlement, drivers license/public
transport entitlement, loyalty programs and club
memberships etc.
Governments and their local regional authoritiesgain a significant enhancement to the provision
of publicly funded services through the increased
security offered by smart cards.
8/10/2019 Securities Issued by Banks
23/33
A travellers cheque is a check that is issued by afinancial institution that can be used as a formof payment.
Travellers cheques are most often used by those
traveling because they are widely accepted aspayment in many parts of the world, yet can bereplaced if lost or stolen by the issuing financialinstitution.
A traveler's cheque is a preprinted, fixed-
amount cheque designed to allow the personsigning it to make an unconditional payment tosomeone else as a result of having paid theissuer for that privilege.
8/10/2019 Securities Issued by Banks
24/33
They were generally used by people on
vacation instead of cash as many businesses
used to accept traveller's cheques as
currency.
If a traveler's cheque were lost or stolen,
they could be replaced by the issuing
financial institution.
8/10/2019 Securities Issued by Banks
25/33
Traveler's cheques were first issued on 1 January 1772 bythe London Credit Exchange Company for use in ninetyEuropean cities,
In 1874 Thomas Cook was issuing 'circular notes thatoperated in the manner of traveler's cheques.
American Express was the first company to develop alarge-scale traveller's cheque system in 1891,and is stillthe largest issuer of traveler's cheques today by volume.
Between the 1950s and the 1990s travelers chequesbecame one of the main ways that people tookmoney on vacation for use in foreign countries
without the risks associated with carrying largeamounts of cash.
Several brands of travelers cheques have beenmarketed; the most familiar of those were ThomasCook Group, Bank of America and American Express.
8/10/2019 Securities Issued by Banks
26/33
A customer should be able topurchase travellers cheques from most majorfinancial institutions.
At the time of purchase, the customer will
be required to sign eachindividual travellers cheque.
The signature is one of the security featuresof travellers cheques as the user will be
required to countersign the check at thepoint of redemption.
If the signatures do not match,the cheque will not be accepted.
8/10/2019 Securities Issued by Banks
27/33
At the time of purchase, the customer should
be provided with a listing of the serial
numbers of the cheques that were
purchased.
If any cheques are reported lost or stolen,
most banks will require the customer to
provide the serial numbers of the missing
cheques. This allows the bank to verify the validity of
the claim and the cheques.
8/10/2019 Securities Issued by Banks
28/33
Using a travellers cheque is a fairly simple
process.
The customer simply provides the travellers
cheque to the merchant as payment. The customer will then need to sign
the travellers cheque in the presence of the
merchant.
Once the merchant verifies that bothsignatures on the cheques match, the
transaction is completed.
8/10/2019 Securities Issued by Banks
29/33
It is a promised future payment or time draft
which is accepted and guaranteed by a bank and
drawn on a deposit at the bank.
It specifies the amount of money , the date and
the person to which the payment is due ,after
acceptance the draft becomes an unconditional
liability of the bank.
But the holder of the draft can sell it for cash at
a discount to a buyer who is willing to wait until
the maturity date for the funds in the deposit.
8/10/2019 Securities Issued by Banks
30/33
A bankers acceptance starts as a time draftdrawn on a bank deposit by a banks customer topay money at a future date typically within sixmonths ,analogous to a post dated check.
The party that holds the bankers acceptance
may keep the acceptance until it matures andthereby allows the bank to make the promisedpayment ,or it may sell the acceptance at adiscount today to any party willing to wait forthe face value payment of the deposit on the
maturity date.
The rate at which they trade are called bankersacceptance rates
8/10/2019 Securities Issued by Banks
31/33
Certificate of deposit is a negotiable money
market instrument issued in dematerialized
form or as a promissory note by scheduled
commercial banks ,including regional rural
banks and local area banks.
Certificates of deposits are discount
instruments and are issued at a discounted
price and redeemed at par value.
8/10/2019 Securities Issued by Banks
32/33
The tenor of issue can range from 7 days to 1year ,however most certificates of depositsare issued by banks for 3,6,12 months.
Certificates of deposits can be issued to
individuals (other thanminors),corporations,companies trusts ,fundsassociations etc.
Non resident Indians may also subscribe to
certificate of deposits .However they aremainly subscribed to by banks ,mutualfunds,provident fund and pension fund andinsurance companies.
8/10/2019 Securities Issued by Banks
33/33
The minimum amount of a certificate ofdeposit should be 1 lakh that is the minimumdeposit that can be accepted from a singlesubscriber should not be less than Rs 1 lakh
and in multiples Rs 1 lakh thereafter.
There exists an active secondary market for
CDs which witnesses an average volume ofRs 200-300crores per day worth demandand supply determined by the liquidityconditions in the market
Top Related