Chapter 2: Deposits in banks

Deposit accounts : 1. Transaction accounts (demand deposit accounts). 2. Time deposit

1. Transaction accounts: Checking account (included single account, Joint tenancy account). Demand deposit is payable on demand whenever the depositor chooses.
2. Time deposits: saving account (most common), money market deposit accounts, CDs, various bond. It less liquid than checkable deposits. Banks may require up to 7 days notice from a depositor, demand
deposit no notice.
Savings account : safest places to put money. It include: passbook SA (helped build the bank industry) & Statement SA (provided a monthly or quarterly computerized)
MMDAs : higher rate of interest than Sas, less liquid than SAs
CDs: issued by banks that guarantee until the maturity date, from 7 days to 10 years. The rate for CDs > the rate for MMDAs. The maturity date is fewer 18 months.
Other demand deposit transaction: travel’s check, money orders…
Credit Union products: Share-draft account(checking account); Share account (SAs); Share certificate (CDs)
APR: the nominal interest rate, is calculated per year. APY: the effect of compounding
The Federal Reserve can effectively take money out of the economy: when they sell securities, the money comes from bank deposits. If the discount rate is low, banks are more likely to borrow money to use to
make money. The economy as a whole plays a far greater role in determining how money is moving than does the govern_.
Disintermediation of funds: when depositors take their money out of bank accounts.
If reserve requirement are high, banks must hold money. Low- more money available for loans. Fed RR only aply to the M1 money supply. Fed influence through its open market.
Deposit account documents (governing docs). Acc rules – explain characteristics. Deposit rate schedules – list interest rate. Fee schedules – charges that apply to each specific type. Check hold policies -
deposited funds will be available. Disclosure statements – full information. Opting out options – notify your bank.
Acc rules: Reference to governing docs – holders agree to abide by the rules. Signature policies – spell out. Opening & closing acc – specific minimum. Resolution form – grant authority. Overdraft policies –
occurs when withdrawals are greater than deposit. Minimum balance – schedule for service charges. Withdrawal policies – for with_ funds. Check policies (include “A state check” – dated 6 months or more
before & “post – dated check” – dated later than when it was written. Acc statement – policies deal with the bank statement. Others.
Fed re_ regulations: Regulation DD – disclose the interest rate paid & the fee charge. Regulation D – maintain adequate reserves. Reg CC – provide who have transaction acc, post a noticeof the bank’s
availability policy pertaining , include a notice of funds availability. Reg E – direct deposit pay checks or precauthorizing reptitive monthly payment.
Benefits of an express checking account include unlimited check writing, low minimum balance requirements, and low or no monthly fees. However, such accounts often charge high teller fees. -The money
supply is determined by the supply and demand for credit. -Savings accounts are among the safest places to put money. Liquidity is high, but interest income is relatively low. A money market deposit account
offers a higher rate of interest than a savings account, but it will typically require a higher initial deposit to open. In addition, minimum balances to avoid fees are also higher, and liquidity is not as great as with
a savings account.
Chapter 3: Banks loan (include: consumer loan, mortgage loan, commercial loan). -Asset Management: use deposit to generate revenue by putting them to work in loans. -MPT: diversification should be used to
spread out risk.
Consumer lending theory: Loan selection (Included: Adverse selection – borrower willing to accept a higher interest rate. Captive borrower – weak credit history. Moral hazard – take greater risks if they think
the harm they will incur form those risks. Credit rationing – banks refuse to provide a loan, or they lend less the customer requested.
Other revenue source: Overdraft protection (Saving acc, credit card, flex line) & assorted letter of credit. Banks earn revenue by selling loans (charging loan orgination fees; selling loan for a slightly higher
principal than the original loan)
Consumer loans: 1.Installment loans: amount of payment, the rate of interest, number of payments are fixed . (Include : secured and unsecured loans; personal loans; lending terminology; vehicale loans; home
equity loans; education loans). Secured loans- some item value backs the loan in case the borrower default on it. Collateral – item that secures a loan. Lien – legal claim. Unsecured loans – backed by the
reputation & credit worthiness. 2.Open-end loans: flexible, no fixed principal, no fixed term. The longer the loan is used, the more will be paid. (Included: credit card & lines of credit (gồm Home equity reserve
& Overdraft protection plan).
Granting & analyzing credit – 1.Granting credit. Gồm “Risk management – is the practice of minimizing financial loss through effective policy” & “Credit approval process” (Underwriting – the process of
reviewing a loan for soundness; Subprime rates – higher than normal to offset the increased risk by a less than perfect borrower. 2.Analyzing credit. Gồm “Consumer reporting agency (cty về biên soạn và bán
dữ liệu về nợ tiêu dùng và thanh toán); Credit scoring system; FICO score – three-digit number that credit granters can use, between 300 & 900”.
Cost of credit: 1.Revolving credit – is a line of credit with a maximum limit ; 2.Reviewing APR & financial charge – (Average daily balance method – adds balances for each day of the billing cycle & divides
by the number of days; Sum-of-digits method – total finance charge / the number of month. Previous-balance method – interest on the amount owed at the beginning of the billing cycle. Adjusted-balance
method – subtract payments made during the billing cycle.) ; 3.Minimum payments; 4.Term . Pay more than their minimum balances => maximizing the cost of credit
The impact of credit. 1.Overtension; 2.Responsible lending: predatory lending – lender making credit too easily available; 3.Credit counseling
Bank loans & policy : Loans & income; Loans & liquidity – liquidity risk: a bank will have to sell its asset at a loss to meet its cash demands; Credit & market risk – credit risk: bank’s estimate of the
probability that the borrower can & will repay a loan; market risk: investment will decrease in price as market conditions change; Loan decision & trade-offs
Câu hỏi: application, documentation, processing, underwriting, closing, funding. -Payment history of the FICO credit-scoring system carries the most weight. - A bank can limit credit risk by carefully screening
loan applicants, setting and applying loan policies, and monitoring outstanding loans. -The “three Cs” are collateral, capacity, and credit reputation. Collateral refers to the security required for the loan.
Capacity refers to the ability to repay the loan, based on income, job history, and amount currently owed. Credit reputation, or credit history, is a record of how well the applicant has repaid debt in the past.
-Captive borrower: This describes how some segments of borrowers are more likely to prefer one type of lender to another. For example, if a car company has a lower loan qualification standard than a bank,
then a consumer with a relatively weak credit history might opt for auto financing from the car company. Because it is easier for a consumer with a weak credit history to obtain a loan from the car company,
that consumer is a captive borrower relative to the car financing company.
Chapter 3: Mortgages - A mortgage is a note or loan secured by real property
Conventional mortgages offer fixed interest rates.; ARM interest rates vary, but generally start at a lower rate than conventional mortgages. What is private mortgage insurance? - A borrower buys PMI to
protect the lender against default on the loan. ; Borrowers with less than 20 percent down must pay PMI. ; Basic steps of the mortgage approval process: Application, documentation, underwriting, drawing
docs, closing, recording.
They protect consumers from unfair practices relating to lending, collecting, and maintaining privacy ; Redlining occurs when a bank refuses to lend to residents in certain neighborhoods. The Community
Reinvestment Act addresses this issue.
The government sometimes acts as a partner to the banking industry, as well as to people and businesses, Numerous government programs help banks help people get loans they need
The banks provide funding, and the government absorbs some of the risk if the borrowers default on the loans.
Because the FHA and VA guarantee loans, lenders have less risk and, thus, can lend to people who might not otherwise qualify ; Mortgage interest income provided a steady payment stream. When housing
prices appreciated, the lender’s exposure to defaulted mortgages was mitigated by the increased value of the house they were left to sell ; List five loan products that were developed to support loosened loan
qualification standards: interest-only loans, SIVA loans, SISA loans, NINA loans, No doc loans.
Chapter 4: Commercial lending
Equipment loans are often tied to all of the following except: redevelopment.. ; NOT finance by a term loan: increasing inventory ; Most short-term business loans are for: one year or less ; A form of asset-
based lending that advances cash…: factoring ; A high DSCR indicates : a good bit ; The greatest start-up cost of new businesses is often equipment ; A bridge loan – particular form of short-term ; OCC
conducts annual survey ; The loan-to-value ratio is the priciple amount.. ; SBA Loan guaranty ; SBA’s Small Business Investment Company ; Many banks offer floorplan loans to meet the inventory financing ;
Speculation – hoped-for outcomes ; lack an underlying - synthetic financial products ; Underwriters must assess (1) the worth of the building with its business function and (2) the building’s potential market
value beyond the business. (name two factors ; The debt service coverage ratio compares net operating income to the total cost of debt. A high DSCR ratio is desirable because the higher the DSCR, the more
net operating income is available for debt service. A DSCR of less than 1.0 indicates a negative cash flow.
Chapter 5: Interpayment
Incoterm: CIF, CFR: chỉ dùng cho đường biển. CIF: buyer buy insurance fee, seller pay insurance & freight. Trong bộ chứng từ k có insurance => CFR, buyer trả freight. Chọn FOB để bên mua k phải trả phí
alongside đến port of loading, mọi trnhiem phía người xuất khẩu cho đến cảng hàng xk đã xong. CIF HCM  HCM Importer . FOB HCM  HCM exporter. Send goods # delivery goods ở quyền chuyển giao
người sở hữu.
CFR = FOB + freight ; CIF = CFR + Insurance = FOB +I+F / - Send goods: just send commodities, no send docs. Delivery goods: send comm_ + docs.
Remittance: 1. Buyer (remitter) send bank draft to Buyer’s bank (remitting bank). 2. RB receipt to remitter. 3. RB sends SWIFT Seller’s bank(benefit’s bank). 4. BB notifies to Seller (benefit). 5. Benefit
(payee) receipt BB.
SWIFT dùng trong chuyển tiền doanh nghiệp. Bank draft dùng trong chuyển tiền cá nhân.
If from seller to buyer = 0  transport goods (trả tiền sau khi giao hàng) - seller more risk / On contract  advance: chuyển tiền ứng trước (buyer more risk)
Bill of exchange (hối phiếu đòi nợ, do seller đặt ra): 1. At sight BE: require for payment immediately . 2. Time draft BE: payment after. / Financial docs: đến ngày trả bao nhiêu, cho ai sẽ được thông báo, k lq
đến hàng hóa. Shipping docs: có liên quan đến hh.
D/P : tại “at… sight of…” : hối phiếu trả ngay. D/A: hối phiếu trả chậm. Cho nhận hàng nhưng phải ký hp, đưa cho bank, đến ngày hạn hp thì trừ tiền. With remittance, bank no have respon_, buyer will into
the bank.
Chuyển tiền trả sau (payment) – contract + tờ khai hải quan + docs : Seller  Buyer  Buyer’s bank  Seller’s bank  Seller . Sau 45 days bổ sung bằng bản sao.
Chuyển tiền trả trước (Advance method) – chuyển tiền trc khi giao: Buyer  Buyer’s bank  Seller’s bank  Seller  Buyer
Consignee: 1. Buyer  risk for seller. 2. To order  to order, to order of shipper, to order of bank (buyer’s bank)
Commercial docs: Invoice – đóng thuế (importance) ; Transport docs – quan trọng nhất, để đi nhận hàng ; Insurance docs – đi kèm transport. Có hay k phụ thuộc vào incoterm, có – nếu insurance thuộc về trách
nhiệm của seller. ; packing list – phiếu liệt kê hàng hóa, thể hiện số lượng và trọng lg khớp vs hóa đơn. Ng mua đưa P/L để nhận hàng ; L/O ; Quality list
Rủi ro tăng dần: Remit_ in payment (risk for seller)  collection, LC ; Remit_ in advance (safe for seller).
Collection: used in close relationship. After sending commodities buyer, seller collect all of docssend to bank. Bank will required buyer pay to seller.  bank provide service, no obligation
Remittance Collection LC
Buyer Remitter Drawee Applicant
Seller Benificiary Principle Benificiary
Buyer’s bank Remitting bank Collecting bk / presenting bk Issuing bank
Seller’s bank Benefit’s bank Remitting bank Advancing bank
Other’s bank Industry bank CB
Clean collection: (goods + commercial docs) – Principal (seller) delivery goods  Drawee (buyer). Seller  presenting bk  send BE to Collecting bank send BE to Drawee  collecting bank 
Presenting bk  Seller.
Documentary collection: 1- Principle (seller) send goods, no docs  Drawee (buyer). 2- Seller send financial docs & commercial docs  remitting bk. 3- RB send all docs  Collecting bk (nh đi thu hộ). 4-
CB send B/E  Drawee. 5- Drawee sight  CB. 6- CB đưa docs  drawee. 7- CB  Remitting bk.
D/P: ng mua trả tiền, nh đưa docs ; D/A: đồng ý 30 days sau trả tiền, nh đưa docs.
Documentary credit: 1- Applicant (buyer) đề nghị mở LC  Issuing bk (buyer’s bk). 2- IB issuing LC  Advising bk (seller’s bk). 3- AB advising LC  Beneficiary (seller). 4- Bene_ send good 
applicant. 5- Bene_ nộp docs  AB. 6- AB send docs  IB. 7- IB payment  AB. 8- IB debit  Applicant. 9- AB credit recording (payment)  Bene_.
Promissory note: do buyer đặt ra, mang tính thụ động. B/E, Promissory note, check are independent with service, goods. Buyer just need com_ docs to receive commercial.
Transhipment: 1-allowed/commited: chuyển tải. Đi từ Hàn qua cảng Sing đến Vn. 2-not allowed/prohibited / Portrial shipment (giao hàng từng phần): nhiều lần, 1 lần 1 miếng.
Trên B/E: Drawee – người trả. Drawer- seller
Ngày lập hối phiếu, có ngay sau ngày lập chứng từ (là bill of lading đó) – cùng ngày or sát ngày lập B/L.