...transactions. By lowering the requirements, it will help the banks have a higher reserve because they will have more money on hand. The more money there is to spend on goods and services will help the economic growth. Economic growth is important if businesses are to grow and prosper. It relates to growth in the size and quality of the economy as a whole. Growth is measured as the change in the gross domestic product of a country minus inflation. Without economic growth it is very difficult to make any meaningful and sustained reduction in poverty. This is especially important in developing economies because it reduces unemployment, budget deficits and it enables an increase in social spending without an increase in tax rates. I believe my rationale for the use of the reserve requirements should be used only when needed. Lowering the requirements will increase the money supply, which may cause inflation. The alternative is to risk the money supply being too small and having a recession. Discount rate is the rate that banks pay to borrow from the Federal Reserve System. A lower rate makes borrowing easier, so banks are able to make loans to ordinary people and businesses. This stimulates the economy. When the discount rate is high it makes borrowing harder for banks. They then don't give as many loans out to people. This slows down the economy. The Fed can choose whatever rate they think is best at the time. It is important to increase growth because it would help people find jobs...
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...You are the chief executive officer of Money Games Inc.(MGI), which has begun to market Borrow & Spend, a video game set in the world of finance. To buy ads, MGI borrows $50,000 from First Savings Bank. On MGI's behalf, you sign a note for the loan and offer its accounts receivable as collateral. You sign a security agreement that describes the collateral. The bank does not file a financing statement. Has the banks security interest attached? If so, when? In order for the safekeeping interest to be accomplished it must first be recorded; which is done with a financing statement. In order to succeed in perfecting the security interest in the accounts receivable, a UCC-1 has to be filed with the state. This then gives all of the creditors a notice that the security interest has indeed been perfected or even attached if there wasn’t any security interest before. This also aids that an additional creditor who has secured debt with a security arrangement can and will not be before First Savings Bank. Without a financing statement, First Saving Bank can be susceptible to be second to a subsequent secure creditor, or even a lien holder. Of course the loan is secured by the security agreement, but the agreement is not effective against secured creditors. Hypothetically speaking, First Savings Bank can take the collateral if there was a default, but no bank will really do the deal without having and filing a financing statement to keep on record. There are some risks of not...
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...BORROWINGS & CHARGES CHAPTER 8 BORROWING POWERS OF A COMPANY BORROWING POWERS • Every trading company has an implied power to borrow, as borrowing is implied in the object for which it is incorporated. A trading company can exercise this power even if it is not included in the Memorandum. However non-trading company has no implied power to borrow and such power can be taken by it implied power to borrow and such power can be taken by it by including a clause to that effect in the Memorandum. A public company can borrow only after the receipt of Commencement Certificate. [Section 149(1)]. But a private company can borrow immediately after the incorporation The Board of Directors may borrow moneys by passing a resolution passed at the meetings of the Board. The board may delegate its borrowing powers to a Committee of Directors. Such a resolution should specifically mention the aggregate amount upto which the moneys can be borrowed by the Committee, the Managing Director, Manager or any other principal officer of the company on such conditions as it may prescribe [Section 292 (1) (c)] The moneys borrowed together with the moneys already borrowed by the company (excluding loans obtained from banks i.e. working capital) shall not exceed the aggregate of the paid up capital and the free reserves. [Section 293(1)(d)] It may be noted that a company may borrow in excess of its paid up capital and free reserves if it is so consented and authorized by the shareholders at a general meeting...
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...manages its assets and liabilities in four ways. 1. Asset Management 2. Liquidity Management 3. Capital Adequacy Management 4. Liability Management 1. Asset Management Asset management is to acquiring assets with the highest return and the lowest risk. To maximize its profits, a bank must simultaneously seek the highest returns possible on loans and securities, reduce risk, and make adequate provisions for liquidity by holding liquid assets. Asset Management involves four basic principles: 1. Finding borrowers who will pay high interest rates but who are unlikely to default. Banks seek out loan business by advertising their borrowing rates and by approaching corporations directly to solicit loans. It is up to the bank’s loan officer to decide if potential borrowers are good credit risks who will make interest and principal payments on time. 2. Purchase securities with high returns and low risk. 3. Lower risk by diversifying - Diversifying the bank’s asset holdings to minimize risk: holding many types of securities and making many types of loans offers protection when there are losses in one type of security or one type of loan. In managing their assets, banks must attempt to lower risk by diversifying. They accomplish this by purchasing many different types of assets (short and long-term, Treasury and municipal bonds) and approving many types of loans. 4. Holding some liquid assets, including excess reserves and Treasury bills, to protect against deposit outflows...
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...MicroEcon-2010 Economics Research Assignment: Short and Naked Short Selling & Their Impact on the Economy The term “Short Sell” refers to a broker who borrows shares of a publicly traded company from a third party, and hopes to sell back to the original owner at a lower price. An example could a broker who borrows and immediately sells 100 shares of “Ryan Stewart Real Estate Company” for $10 a share, equaling $1,000. The price per share falls to $7, so the broker buys the original 100 shares back at a lower price of $700, and returns the original amount of shares to the third party. Therefore the broker profited $300 while the stocks were losing value. The term “Naked Short Sell” refers to the selling of shares, before you borrow them. If there are many sellers of a particular share, then the price of the stock decreases. Brokers use naked shorting to drive the price of a stock down. An example is someone trying to sell someone’s house without their permission. The broker doesn't have the title to the home before they have a buyer. Therefore the difference in short selling and naked short selling is that one has the right to borrow a third parties stock and the other doesn't. When any decently educated person wants to invest money into stocks they should look at the current earnings of a company and their estimated future earnings. But what if a large amount of brokers are collaborating to drive the stock price...
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...Social Security History, Current Structure and Calculation of Benefits The Social Security Act was implemented in 1935, after the stock market crash had wiped out the savings of millions of Americans, the nation reached out to their president to guarantee the elderly a decent income. The original Act provides retirement benefits payable to a person 65 years and older who were no longer working. There were very few people that had access to pension from their employers and through government pension programs. Most of the elderly lacked enough income to be living on their own without working. The Social Security Act was enacted at the urging or President Franklin D. Roosevelt to create a social insurance program that ensures workers would have a source of income after they retired (2010). In the years that have followed, Social Security has become one of the Federal Government’s most popular and essential programs. Despite all efforts to encourage savings and investment, the retirement picture has not changed much in recent years. Today even barely half of the workers have access to retirement plans at work and millions reach retirement age without enough savings to provide sufficient living. The Act also provided funds to assist children, disabled like the blind, the unemployed and provide family health programs. The placement of Social Security brought complex challenges to the administration. The administration had to register citizens for benefits, contributions...
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...economic value or wealth” (Keown, Martin, Petty, & Scott, 2005, p. 4). • Role in finance: Finance within a company is vital since it leads toward creating wealth. It helps make decisions such as when to introduce new products, when to invest in new assets, and when to borrow money. (Keown et al., 2005, p. 4). b. Efficient Market: “A market in which the values of all assets and securities at any instant in time fully reflect all available public information” (Keown et al., 2005, p. 16). • Role in finance: To provide quick information with accurate and right prices. c. Primary Market: “Transactions in securities offered for the first time to potential investors” (Keown et al., 2005, p. 484). • Role in finance: Provide a channel for sale of new securities. In addition, it also provides a variety of opportunities to those who issue securities such as corporations, or government, to raise resources to meet their requirements within their obligations. d. Secondary Market: “The market in which stock previously issued by the firm trades” (Keown et al., 2005, p. 11). • Role in finance: To provide a place for investors/public an efficient place to trade his/her securities. For management of firms, secondary markets serve as control and monitoring conduit – enabling implementation of incentive-based management contracts and helps management made decisions. e. Risk: “…we referred to risk as the likely variability associated with expected revenue...
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...1.0What Is Public Debt? Public debt is also sometimes referred to as government debt. It is a term for all of the money owed at any given time by any branch of the government. It encompasses public debt owed by the federal government, the state government, and even the municipal and local government. Public debt accrues over time when the government spends more money than it collects in taxation. As government engage in more deficit spending, the amount of public debt increases. Public debt can either be: 1.1External debt 1.2Domestic debt or Internal Debt 1.1External debt: Public debt can be made up of all sorts of different types of debt. A great deal of public debt is external debt, which is money that is owed by the government to foreign lenders, either in the form of international organizations, other governments, or groups like sovereign wealth funds which invest in government bonds 1.2Domestic debt or Internal Debt: Public debt is also made up of internal debt, where citizens and groups within the country lend the government money to continue operating. In some ways, this is a lot like lending to oneself, since ultimately the responsibility for public debt falls back on the very people lending money. 2.0Benefits of Public Debt * It is an alternative for financing fiscal budget deficit * Deficit budget raise the recession and public borrowing help the economy not to be fall in recession * Public...
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...Revolution. It wasn't officially considered a national debt until the Independence and the declaration of the U.S. Constitution. By the year of 1835, they were completely debt-free due to several budget surpluses and an effective budget planning. However, the budget surplus didn't last that long as the borrowing of money started again right after a year. The U.S. borrows money from Federal Reserve, U.S. Individuals and Institutions, Social Security Trust Fund, and other foreign nations and governments by issuing bonds for sale through the U.S. Treasury. Throughout history, some of the key reasons for the accumulation of the national debt was due to wars such as; WWI, WWII, Cold War, etc., drastic tax-cuts, The Great Depression, economic recessions, military and defence spending, welfare programs, bail-outs of big corporations, etc. America is forced to borrow money every time when their expenses are more than their revenue. This borrowing of money ultimately puts a debt on the U.S. and its citizens. The majority of the U.S. debt is owned by Federal Reserve and other U.S. individuals and institutions like; Social Security Fund, etc. whereas the second largest holder of the U.S. debt is China followed by Japan. Both China and Japan own 1.1+ trillion of U.S. debt each. The major borrowing of the debt started from the Reagan presidency term. Before Reagan presidency, the debt was just under a trillion dollars. By the end of Reagan's two terms as president, the debt accumulated and tripled...
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...management is concerned with the maintenance and creation of economic value or wealth. Consequently, this course focuses on decision making with an eye toward creating wealth. As such, we will deal with financial decisions such as when to introduce a new product, when to invest in new assets, when to replace existing assets, when to borrow from banks, when to issue stocks or bonds, when to extend credit to a customer, and how much cash to maintain. (Arthur J. Keown, John D. Martin, J. William Petty, and David F. Scott, Jr.-2005) Efficient market- is a market in which the values of all assets and securities at any instance in time fully reflect all available public information. An efficient market is characterized by a large number of profit-driven individuals who act independently. In addition, new information regarding securities arrives in the market in a random manner. Given this setting, investors adjust to new information immediately and buy and sell the security until they feel the market price correctly reflects the new information. ( Author J. K. et all- 2005) Primary market is a market in which new, as opposed to previously issued, securities are traded. This is the only time that the issuing firm actually receives money for its stock. For example, if Nike issues a new batch of stock, this issue would be considered a primary market transaction. In this case, Nike would issue new shares of stock and receive money from investors. Secondary market is the market in which...
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...Chapter 1 Financial Markets Financial markets perform two important functions. They transfer funds from savers into investments and they transfer title of ownership of existing securities from sellers to buyers. Financial markets and the transfer of savings Two basic methods exist for transferring funds from savers to users. First is direct investment when you start own business and invest your savings in the operation. A direct investment also occurs when securities are initially sold to investors in primary market. In the second markets, no funds are transferred and no new assets are created, there is only the transfer of ownership of an existing asset. The alternative to direct transfer of savings is an indirect transfer through a financial intermediary. You lend funds to the bank; the bank lends the funds to the ultimate borrower. The role of money Money: anything that is generally accepted as a means of payment. Liquidity: Ease of converting an asset into cash without loss, the depth of a financial market. Federal Reserve has the power to control the supply of money and to oversee the commercial banking system. Money supply: Total amount of money in circulation. 2 measures: M1: Sum of coins, currency, and demand deposits (checking account); M2: M1+saving accounts (70%), small certificates of deposits. The role of interest rates Interest is the cost of credit, the price paid for the use of someone else’s money. Generally, the longer the term of the debt...
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...Regional rural banks 3. scheduled primary co-operative banks 4. NBFCs (BO’s Jurisdiction limited to “loan” part.) * BO is not a replacement of Consumer forum/courts. He merely supplements them. * BO deals with matters less than or equal to Rs.10 lakhs. * Here are some examples situation where BO can help you: Regular banking 1. Demand draft, cheques, pay orders etc. not issued on time. (or not paid on time) 2. Credit card related complaints (e.g. bank putting hidden charges. Your credit card was stolen but bank did not disable it even after you called them.) 3. You asked the bank to close your account / credit card but they are not doing it. 4. Bank refuses to open your account without giving valid reasons. 5. Bank closes down your account without valid reasons. 6. Government / your company deposited salary / pension in your account but the bank is not releasing it on time. 7. Bank is taking out money from your account in pretext of some flimsy charges. 8. Branch office notice board says “10.30 to 5” but staff refuses to provide you service after 3.30PM. 9. NRIs having bank account in India and facing problems about remittances...
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...What is Bank rate? Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Prime Lending Rate. This any revision in the Bank rate indicates could mean more or less interest on your deposits and also an increase or decrease in your EMI. What is Bank Rate ? (For Non Bankers) : This is the rate at which central bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa. Thus, it can said that in case bank rate is hiked, in all likelihood banks will hikes their own lending rates to ensure and they continue to make a profit. | What is CRR? The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities]. RBI uses...
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...Art and Science Management is both art and science. It is the art of making people more effective than they would have been without you. The science is in how you do that. There are four basic pillars: plan, organize, direct, and monitor. Make Them More Effective Four workers can make 6 units in an eight-hour shift without a manager. If I hire you to manage them and they still make 6 units a day, what is the benefit to my business of having hired you? On the other hand, if they now make 8 units per day, you, the manager, have value. The same analogy applies to service, or retail, or teaching, or any other kind of work. Can your group handle more customer calls with you than without? Sell higher value merchandise? Impart knowledge more effectively? etc. That is the value of management - making a group of individual more effective. Basic Management Skill #1: Plan Management starts with planning. Good management starts with good planning. And proper prior planning prevents… well, you know the rest of that one. Without a plan you will never succeed. If you happen to make it to the goal, it will have been by luck or chance and is not repeatable. You may make it as a flash-in-the-pan, an overnight sensation, but you will never have the track record of accomplishments of which success is made. Figure out what your goal is (or listen when your boss tells you). Then figure out the best way to get there. What resources do you have? What can you get? Compare strengths and...
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...from the Federal Reserve: Describe the process of “borrowing at the Federal Reserve.” What rate is charged, and who sets it? Why do banks commonly borrow in the federal funds market rather than through the Federal Reserve? “Borrowing at the discount window” represents the borrowing by depository institutions from the Federal Reserve. The interest rate charged on these loans is known as the discount rate is set by the FED. Banks tend to prefer the federal funds market over the discount window because the Fed may monitory the bank’s reasons for borrowing. The Fed’s discount window is intended to accommodate banks that experience “unanticipated” shortage of funds. 9) Bullet Loan: Explain the advantage of a bullet loan. A bullet loan is a loan that specifies a date in the future in which the principal is paid off in a lump sum. This type of loan is useful for a borrower will have limited funds in the near future. 10) Bank Use of Funds Why do banks invest in securities even though loans typically generate a higher return? Explain how a bank decides the appropriate percentage of funds that should be allocated to each type of asset. Securities provide a bank with liquidity, because they can often be sold easily in the secondary market. In addition, many securities purchased by banks have low risk. Therefore, the securities can be used to minimize liquidity risk and default risk. The optimal allocation of funds is dependent on a bank’s degree of risk aversion and...
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