8. What are the characteristics of a loan commitment that an FI may make to a cu
ID: 433564 • Letter: 8
Question
8. What are the characteristics of a loan commitment that an FI may make to a customer? In what manner and to whom is the commitment an option? What are the various possible pieces of the option premium? When does the option or commitment become an on-balance-sheet item for the FI and the borrower? 8. What are the characteristics of a loan commitment that an FI may make to a customer? In what manner and to whom is the commitment an option? What are the various possible pieces of the option premium? When does the option or commitment become an on-balance-sheet item for the FI and the borrower?Explanation / Answer
A loan commitment is a consent to loan a settled greatest measure of cash to a firm inside some given measure of time. The loan fee or rate spread normally is resolved at the season of the assertion, just like the period that the commitment is open.
An advance duty is a consent to loan a settled most extreme measure of cash to a firm inside some given measure of time.
The loan fee or rate spread regularly is resolved at the season of the understanding, like the time allotment that the responsibility is open.
An advance responsibility is a consent to loan a settled most extreme measure of cash to a firm inside some given amount of time. The financing cost or rate spread typically is resolved at the season of the understanding, as is the length of time that the responsibility is open. Since the borrower often triggers the planning of the draw, which might be any part of the aggregate responsibility, the dedication is an alternative to the borrower. On the off chance that the advance isn't required, the choice or draw won't be worked out. The premium for the dedication may incorporate a charge of some percent times the aggregate responsibility and an expense of some percent times the measure of the unused duty. Obviously, the borrower must pay intrigue while any part of the responsibility is being used. The choice turns into an on-asset report thing for the two gatherings at the point in time that a draw happens.
A consent to loan a settled most extreme measure of cash to a firm inside some given measure of time, regularly at foreordained financing cost.
The dedication is a choice to the borrower.
The premium incorporates in advance expense and back-end charge on unused bit.
Since the borrower as a rule triggers the planning of the draw, which might be any bit of the aggregate duty, the responsibility is an alternative to the borrower.
On the off chance that the advance isn't required, the alternative or draw won't be worked out.
The premium for the responsibility may incorporate an expense of some for each penny times the aggregate duty (expenses charged for making stores accessible through a dedication).
An expense of some for each penny times the measure of the unused duty. Obviously, the borrower must pay intrigue while any part of the responsibility is being used. The choice turns into an on-monetary record thing for the two gatherings at the point in time that a draw happens.
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