1. Show how the folowing transactions affect te balance sheet of a certain comme
ID: 2658864 • Letter: 1
Question
1. Show how the folowing transactions affect te balance sheet of a certain commercial bank
a. The bank issued 500,000 shares for $10 par value, for which the stockholders fully paid the corresponding amount
b.The bank receives a time deposit of $111,000 in cash , and made a corresponding legal reserve for 15% of time deposit
c, the management acquires some additional office equipment for $25,000, and office furnitures for $18,030
d, The bank receives application for mercantile credit amounting to $25,000
2. Answer the following questions comprehensively
a. Explain how the bank control the loan extended to the borrowers
b.Discuss the trust activity of the bank as a guardian of minor's interest
c,Why does loan complement deposit
d,Discuss the significance of credit investigation to the bank
Explanation / Answer
2=
a=As credit markets rebound, companies will increasingly seek financing for their businesses. Financing may take many forms: revolving credit loans, loans to finance the acquisition of a target company, or construction loans, to name a few. Loans may be short- or long-term, may fully amortize, or may have a balloon maturity date.
This article stresses the critical importance of the initial steps when approaching a loan commitment and outlines effective approaches for a borrower negotiating a commitment for the most common type of credit agreement: a facility that the company will use for most of its credit needs. Common components of such a facility will include (1) an agreement to borrow and repay loans from time to time for use as the borrower's working capital; (2) an agreement for an amortizing term loan, often for capital items such as equipment purchases; and (3) an agreement by which the lender agrees to issue letters of credit to third parties as requested by the borrower, typically suppliers to the borrower. These loans will almost invariably be secured by most, if not all, the property of the borrower.
Negotiate Critical Terms Before Signing
Loan agreements are always one-sided in favor of the lender. No matter how persistent the borrower, the final documents will impose numerous covenants and restrictions on the borrower and afford the lender a wide range of rights. It is important for any borrower to be realistic about what it can hope to achieve.
The borrower's most important strategy, by far, is to negotiate critical loan provisions before it signs the commitment, not after. Never forget that what the lender is selling is fungible: money. At the commitment stage, the borrower may actually or purportedly be negotiating with other lenders. This is the moment when the loan officer will be the most flexible in order to get the loan in the door. It is important that the borrower recognize this and negotiate its wish list early before signing anything or making any kind of deposit. Engaging counsel is also critical. Many a borrower has lived with an oppressive loan agreement because its lawyer arrived only in time to review final loan documents, which by then memorialized a deal cast in stone.
b=One of the important functions of the Bank is to accept deposits from the public for the purpose of lending. In fact, depositors are the major stakeholders of the Banking System. The depositors and their interests form the key area of the regulatory framework for banking in India and this has been enshrined in the Banking Regulation Act, 1949. The Reserve Bank of India is empowered to issue directives / advices on interest rates on deposits and other aspects regarding conduct of deposit accounts from time to time. With liberalization in the financial system and deregulation of interest rates, banks are now free to formulate deposit products within the broad guidelines issued by RBI .
This policy document on deposits outlines the guiding principles in respect of formulation of various deposit products offered by the Bank and terms and conditions governing the conduct of the account. The document recognises the rights of depositors and aims at dissemination of information with regard to various aspects of acceptance of deposits from the members of the public, conduct and operations of various deposits accounts, payment of interest on various deposit accounts, closure of deposit accounts, method of disposal of deposits of deceased depositors, etc., for the benefit of customers. It is expected that this document will impart greater transparency in dealing with the individual customers and create awareness among customers of their rights. The ultimate objective is that the customer will get services they are rightfully entitled to receive without demand.
While adopting this policy, the bank reiterates its commitments to individual customers outlined in Bankers' Fair Practice Code of Indian Banks' Association. This document is a broad framework under which the rights of common depositors are recognized. Detailed operational instructions on various deposit schemes and related services will be issued from time to time.
c=
you may if your bank loan says you may. The rate will go down simply by the fact that you have an early pay off. Pay one regular payment, then pay (by separate check) one principal payment. That will cut your loan in half. one half with no interest.
d=
Appraisal of a prospective borrower's ability and willingness to repay a loan, carried out by a Credit Analyst. Before approving a loan, a lender may ask for credit references and personal or corporate financial statements, obtain a copy of the applicant's Credit Report, and also verify the applicant's salary with his or her employer.
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