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Banks & Derivatives

Banks provide important financial services like receiving deposits and issuing loans. There are various types of banks including commercial banks, rural banks, and government-owned banks. Checks come in several types like certified checks, traveler's checks, and post-dated checks. Financial markets allow risk to be transferred through derivative instruments like options, forwards, futures, and swaps. Derivatives derive their value from underlying assets and allow risks to be shared between parties.

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Ethan Finn
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53 views2 pages

Banks & Derivatives

Banks provide important financial services like receiving deposits and issuing loans. There are various types of banks including commercial banks, rural banks, and government-owned banks. Checks come in several types like certified checks, traveler's checks, and post-dated checks. Financial markets allow risk to be transferred through derivative instruments like options, forwards, futures, and swaps. Derivatives derive their value from underlying assets and allow risks to be shared between parties.

Uploaded by

Ethan Finn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as TXT, PDF, TXT or read online on Scribd
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FINANCIAL MARKETS (April 08, 2020)

BANKS
- institution licensed to receive deposits and make loans
- financial services provided: wealth management , currency exchange, safe deposit
boxes

Types:
1. Private Banking Institutions
- Commercial Banks
- Universal/ Expanded Commercial Banks
- Rural Banks
- Cooperative Banks
- Thrift Banks
* Savings & Mortgage Banks
* Private Development Banks
* Stock Savings & Loans Assoc.
2. Government Banking Institutions
- Landbank
- DBP (Development Bank of the Philippines)
- Philippine Veterans Bank
- Phil. Al-Amanah Islamic Inv. Bank

Types of Checks
1. Cross Check
- crossed with two parallel lines (whole check or left-hand corner)
- signifies it can only be deposited into a bank account
2. Post-dated Check
- issuer has stated a date later than the current date
- to secure payments
3. Stale Check
- presented to be cashed or deposited at a bank six months or more after the date
it was written
- can no longer be deposited
4. Manager's/Cashier's/Treasurer's Check
- issued by bank
- payable to a payee as indicated by the person who buys the MC
- often used in situations when the beneficiary does not accept cash or personal
cheques
5. Certified Check
- the issuing bank guaranteed that there will be enough cash available in the
holder's account when the recipient decides to use the check
6. Traveler's Check
- certified bank draft that travelers may use the same way they use regular paper
currency. Traveler's checks may be used in place for cas purposes in travels.

Float
- difference bet. bank's balance for a firm's account and the balance that the firm
shows on its book
1. Mail Float
* amount of customer's payments that have been mailed by a customer
but not yet received by the seller
* deposit in transit
2. Processing Float
* amount of customer's payments that have been received by the
seller but not yet deposited
3. Clearing Float
* amount of customers' checks that have been deposited but not yet
cleared
Kiting
- form of check fraud
- involving taking advantage of the float to make use of non-existent funds in a
checking or other bank account.
- checks are misused as a form of unathorized credit

DERIVATIVES
- business decisions are made in the presence of RISK
- a decision maker confront two types of risk
* Business Risk
* Financial Risk

Financial Risk
- our financial system is replete with risk
- also provides a means of dealing with risk in form of derivatives

Definition
-returns are derived from those of other financial instruments
- companies and individuals can trasfer any undesired risk to other parties

Derivative Markets and Instruments


- a security is a tradable instrument representing a claim on a group of assets
- on the first basis, the markets are known as cash market or spot market.

Types
1. Options
- right to buy (call) or sell (put)
- buyers pay a sum of money called price or premium (option price)
2. Forwards
3. Futures
4. Swpas

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