1. The main function of a bank is to take in funds from surplus units, whom are persons that have excess funds (depositors) and lend to deficit units, whom are persons who are in need of funds to finance a need (borrowers).The main reason for a bank to lend is to make a profit. Banks take in deposits and in turn pay interest on these deposits. A bank is unable to pay interest if they do not have a source of income or a way of making a profit. Apart from paying interest, a bank has a demand to staff, shareholders and society. When lending funds the bank pose a risk of not only interest payable but also losing the depositors original funds. Therefore, the lending process is a critical decision amongst lenders due to the risk involved. “The general principles of good lending, or canons of lending, if consistently applied with a structured, analytical approach and sound judgment will reduce the risk involved in lending to the customer.” The canons of lending are guidelines the lenders follow in assessing the creditworthiness of a client or potential borrower. There are many different canons of lending, from Campari, 5 C’s, Parsers and Parts, however they all pose the same components and information required to complete an assessment and assist with making a credit decision. Whilst completing an assessment for Mr. and Mrs. Shepherd, I will use the canon of lending tool Campari to make a decision on their proposed request. Character- Mr. and Mrs. Shepherd are husband and wife and both at aged 45. They are new clients of our bank, however they have reported that they are good long standing customers of their existing bank and are seeking financing through our bank due to their existing bank not having a local presence in Scotland. They do not have any experience in the hotel industry, however Mr. Shepherd is a Freelance Illustrator, whom also has experience as a Salesman and Ms. Shepherd has experience in the restaurant trade. Ability- Mr. Shepherd advised that he earns £60,000 per year from his freelance illustrating, which he is seeking to continue to do whilst running the hotel. Both Mr. and Mrs. Shepherd are seeking to run the hotel together as a partnership; however they have no experience in this business. Based on profit and loss statements provided by the previous hotel owner, the hotel seems stable and had only drop profits within the last year due to his illness.
With that in mind, it is important to understand a couple of concepts before analyzing and determining the effectiveness of that document. Although people do not always realize it, the purchase of a home is one of the b...
The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.
The credit crisis is referred to as economic downturn by credit squeeze, provision of doubtful debt and bankruptcies among others. (IMF, 1998) Credit crisis is known as a credit crunch, it is an extension of recession. According to the Ocaya (2012), Credit crisis is a sudden shortage of loan and tightened the requirement of economy and society needs of getting loan from financial institutions. In such situation, lender started keeps the cash and stop lending money because they are worry about a large of debtor bankrupt and mortgage defaults. Lender had adjusted the interest rate of borrowing to unaffordable rate. Credit crisis decrease the total demand and fall in supply, therefore, it constrains the growth of the economy. The credit crisis is begun in the early 2006 when several events relating the financial system went wrong in the United States of America. The factors leads to credit crises are complex with varying weight.
Mortgage loans are a substantial form of revenue for the financial industry. Mortgage loans generate billions of dollars in the financial industry. It is no secret that companies have the ability to make a lot of money by offering a variety of mortgage loan products. The problem was not mortgage loans but that mortgage companies were using unethical behavior to get consumer mortgage loans approved. Unfortunately, the Countrywide Financial case was not an isolated case. Many top name mortgage companies have been guilty of unethical behavior. Just as the American housing market was starting to recover from its worst battering since the Great Depression, a new scandal, an epidemic of flawed or fraudulent mortgage documents, threatens to send not just the housing market but the entire economy back into a tailspin (Nation, 2010).
While both cash and credit are two acceptable forms of payment, they vary in many ways. Which one best suit your needs?
This blog post describes research on the effect of limits on payday lending. It notes that a study by Harold Cuffe and Christopher Gibbs has found that such restrictions not only restrict the number of payday loans being made, they also significantly reduce sales at liquor stores, particularly for those within 33 feet of a payday lender.
It’s mandatory for all the banks to deposit a certain determined percentage of their assets with the central bank to make sure that the banks’ customer deposits are safe. These percentages are what the central bank adjusts to reduce or increase the banking lending ...
The central bank is a financial institution that organizes the government’s finances, controls money and credit of the economy and assists as the bank to commercial banks. The roles of the central banks are to create money and develop Monetary Policies. Monetary Policy can be used to give assistance in the way an economy is currently operating in. Monetary Policy has two effects, expansionary policy and restricted policy. Expansionary policy helps lower interest rates and raise inflation in the economy; this policy improves growth for short run for the overall performance of the economy. On the other hand, restricted policy does the exact opposite of expansionary. Restricted reduces growth and inflation in the economy. Another role of the central banks is to manage the payments system by the inter-bank payments. This role of the central banks provides loans during times an economy is not operating at its financial capacity. Lastly, the central bank oversees the commercial banks, where the central banks ensures that the financial system provides citizens confidence in their soundness. The objectives of the central banks are to provide low, stable inflation, high economic growth, stable financial markets, interest rate stability and exchange rate stability.
When shopping for your daily expenses such as food or shopping for yourself for a night out, no matter what the occasion is you always have the options on how you would like to pay with cash or credit. Everyone has their own opinion on whether they prefer cash or credit. I believe there are many pros and cons to each one but I prefer to use credit in many ways. There are many differences and similarities when it comes to convenience, safety, and expense for cash and credit. Which one is worth to use more?
There is a constant flow of cash and funds through the financial system due to the financial institutions as they assist money movement among the borrowers and lenders (lecture notes, chapter 8, 9, 15) a financial institution is basically a firm like a bank which acts as a safe house for depositors to keep their money and also provide loan with interest to others and this how they expand the institution. This is the basic concept of the way the economics works in a country and also how a bank functions. All the banks are connected to one another and if there is a problem in one of the banks the bank looses it image in the minds of the people and if it’s a big problem it can cause disaster within the financial system of the country and this can only be caused due to shortage of liquid cash. To have a proficient system the bank has to be sure to be liquid to avoid any problems. (Chapter 1) To help avoid this problem the government lays down regulations for the banks through prudential supervision (Chapter 2). The Australian regulatory power is Australian Prudential Regulation Authority (APRA), whereas in Singapore it is Monetary Authority of Singapore (MAS). The key concept of their job is to assure the people that their money is in safe hands. Keeping the capital safe is essential as it assists the bank to expand and help them pay off any debts when needed (Chapter 2). In context to if there is an emergency as the government has some control on the banks it asks them to keep some money on the ...
Loan officers have many important duties that they have to do while on the job. Loan officers contact potential loan applicants, both people and companies, and they ask them if they are in need of a loan. After ...
Money supply is the availability of money in the hands of the public (economy) that can be used to purchase goods, services and securities. In macroeconomics, the price of money is equivalent to the rate of interest. There's an inverse relationship between money supply and interest rates. As money supply increases, interest will decrease. On the other hand, interest will increases as money supply decreases. It is very important to understand that the economy works at market equilibrium. There are several factors affecting money supply; and these contributing factors will be the main focus of this paper. Understanding the basic principle on money supply is imperative to have a good grasp on the macroeconomic impact of money supply on business operations.
Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures.
Based on the loan features(interest rates & other charges),eligiblity criteria and services provide the following case study of main players for home loans is given below:
Banks sector is playing an important role in economies. The banking industry, as the classic and the most influential of financial intermediaries, facilitates economic operations. Financial sector in the worldwide country has been changes over these years by looking the changes of financial structure environment and economic conditions. Thus, banks are a very important point to financial system and play an important role as control and contribute growth to the economic sector.