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Chapter: Business Science - Banking Financial Services Management - Sources And Application Of Bank Funds

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Important Short Questions and Answers: Sources and Application of Bank Funds

Business Science - Banking Financial Services Management - Sources And Application Of Bank Funds -

SOURCES &APPLICATION OF BANK FUNDS

 

1.What Is Capital Adequacy?

CA framework is that a bank should have sufficient capital to provide a stable resources to absorb any losses arising from the risk in its business

 

2.Write a note on application of bank funds.

The application of funds is part of the funds statement which shows the various uses of the firms working capital or other funds easily converted into cash.

 

3.What is deposit?

It is a sum of money paid into a bank (or) building society account.

 

4.What are the types of non-deposit sources

        Call & notice money

        External commercial borrowings(ECB)

        Export refinance

 

5.What is call & notice money?

Call money is short-term finance repayable on demand, with a maturity period of one to fifteen days, used for inter-bank transactions. The money that is lent for one day in this market is known as "call money" and, if it exceeds one day, is referred to as "notice money.

 

6.What is ECB?

Commercial loan in the form of bank loan,buyer‟s credit,supplier‟s credit,fixed rate of bonds taken from non-resident lenders with a minimum maturity period of 3years.

 

7.What is mean by cost plus margin pricing?

Banks determine deposit rateCost of offering services plus small profit of margin formula: operating expenses per unit of deposit service Estimated overhead expenses allocated to deposit function planned profit from each deposit unit.

 

8.What is mean by market penetration deposit pricing?

Based on market share (or) Growth of market,the rate is fixed

 

9.What are the types of lending?

        Fund based lending,

        Non fund based lending,

        Asset based lending.

 

10.What do you mean by lending?

It is a primary functions of bank and as well as receive the deposits and provide the loan to their customers

 

11.What is off balance sheet?

Some assets or debt is not appeared in the balance sheet.items that are considered off balance sheet are generally ones in which the bank does not have legal claim or responsibility for

 

12.What is unsecured loan?

They are the monetary loans that are not secured against the borrowers assets.

 

13.Write a short note on bankruptcy.

Bankruptcy is a legal status of a person or other entity that cannot repay the debts it owes to creditors

 

14.What is project financing?

The raising of funds required to finance an economically separable capital investment proposal in which the lenders mainly rely on the estimated cashflow from the project to service their loans.Ex: highways

 

15.What is credit analysis?

It is the quantitative and qualitative analysis of a bank which help to determine the banks debt service capacity.

 

16.What are mean by fund based lending and its types?

Bank commits Physical outflow offunds.

        Types of FBL:

        Loans

        Cash credit

        Overdraft

        Purchase of bills of exchange

 

17.What is Overdraft or BOD or bank over draft

An arrangement whereby the bank allows the customers to overdraw from its current deposit account.Security (assets& personal)&Charging of interest.

 

18.Meaning -Letter of credit

A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller

 

19.What is asset based lending.

Which the asset being bought (inventory, land or machine) is used as collateral.

        Quality of the collateral

        Off balance sheet financing

 

20.What is project financing?

The raising of funds required to finance an economically separable capital investment proposal in which the lenders mainly rely on the estimated cash flow from the project to service their loans.Ex: highways

 

21.What is securitization

It means to covert an asset into marketable securities for the purpose of raising cash or funds.

 

22.What are the different types of loans

        Loans for working capital

        Loan for capital expenditure &industrial credit

        Loan for syndication

        Loan for agriculture

        Loans for infrastructure – Profit finance

        Loans for customers(or) retail lending

 

23.Major components of typical loan policy document.

        Loan objectives

        Volume &mix of loans

        Loan evaluation Procedure

        Credit administration

        Credit files&Lending rates

 

24.What is mean by Credit management

Credit risk management process should cover the entire credit cycle starting from the organization of the credit in a financial institution to the point the credit is extinguished.

 

25.What is credit delivery and administration

Credit delivery: it involves the tradeoff between the perceived default risk of the credit applicant and potential returns from granting requested credit.

Creditadministration (Preparation of loan agreement, Renewal notices are sent systemmatically&Updation of credit files)

 

26.Pricing of loans process

Step: 1 Arrive at cost of funds

Step: 2 Determine servicing cost for the customers

Step: 3assess the default risk &enforceability of risks

Step: 4fixing the profit margin

 

27.What is customer profitability analysis

It is a loan pricing method that takes into account the lender‟s entire relationship with the customer when pricing the loan

 

28.Types of investment

        SLR investment

        Non SLR investment

 

29.Write a note on application of bank funds.

The application of funds is part of the funds statement which shows the various uses of the firms working capital or other funds easily converted into cash.


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