1. What is Financial Institution (FIs) ?
Financial Institution (FIs) are foundations that gives budgetary administrations to its customers or individuals. Likely the most imperative money related administration gave by budgetary organizations is going about as monetary go-betweens. FIs incorporate business banks, reserve funds and advance affiliations, venture organizations, insurance agencies and annuity store. Each cutting edge economy has FIs, which perform key monetary capacities for people, families, enterprises, little and new business, and government.
2. What are the Different types of Financial Institutions ?
Different types of FIs are:
1. Depository Institutions: These are the FIs, those receives deposits. These deposits express the liabilities of the deposit-accepting institution. Their income is derived from two sources:
a) the income generated from the loans they make and the securities they purchase, and
b) fee income.
The various types of depository institutions are:
1. Commercial Banks:
It gives various administrations in monetary framework. The administrations can group into i) individual keeping money, ii) institutional managing an account, and iii) worldwide saving money. b. Credit unions: They are usually known as agreeable social orders. The reason for credit union is to benefit their individuals' sparing and acquiring needs.
2. Insurance companies:
It gives protection approaches, which are lawfully tying contracts for which the strategy holder pays protection premium and the organization guarantee to pay to arrangement holder on the event of future occasions.
3. Mutual Funds:
These are the arrangement of securities, primarily stocks, securities, and currency business instruments. The speculation chief effectively deals with the portfolio i.e. purchase and offer securities.
4. Pension funds:
It is a store that is set up for inevitable installment of retirement advantages financed by commitment by the manager. A benefits is a type of worker compensation for which the representative is not burdened until stores are pulled back.
3. What are the functions of financial institutions?
The main functions of financial institutions of this nature are as follows:
1. Accepting Deposits
2. Providing Commercial Loans
3. Providing Real Estate Loans
4. Providing Mortgage Loans
5. Issuing Share Certificates.
Financial institutions give advances, business stock financing and aberrant customer advances. These organizations get their trusts by issuing bonds and different commitments. The elements of money related foundations, for example, stock trades, merchandise markets, fates, cash, and choices trades are essential for the economy. These organizations are in charge of keeping up liquidity in the business sector and overseeing value change dangers. As a feature of their different administrations, these establishments give speculation opportunities and help organizations to create stores for different purposes. The elements of money related establishments like speculation banks are additionally key and identified with the venture area. These organizations are included in various monetary exercises, for example, endorsing securities, offering securities to financial specialists, giving financier administrations, and gathering pledges guidance.
4. Explain the different types of services provided by a bank or Financial Institution.
Banks provide a number of important financial services to businesses:
1. Loans furnish organizations with extension capital. A bank will give a business a given entirety for a predetermined span of time.
2. Business account services empower a business to execute its regular issues, for instance paying wages into representative's records, paying bills, and assuming up times of praise.
3. Overdraft offices empower a business to have a brief time of credit to smooth out income challenges.
4. Cheques, credit cards and bank drafts empower a business to easily deal with its regular instalments and exchanges.
5. The bank will likewise give orderly and continuous counsel, especially to little organizations and new businesses.
6. Banks likewise give long haul account as home loans for the buy of area and property.
7. Merchant banks and issuing houses additionally bolster organizations in the administration of offer issues.
5. Why Financial Intermediary is necessary ? Or, Importance of Financial Intermediary.
Financial intermediaries seem to have a key part in the rebuilding and liquidation of firms in trouble. Specifically, rich confirmation money related go-between assume a dynamic part in the reallocation of dislodged capital. Money related middle people can perform this part by accumulating the data on firms gathered in the credit market. The capacity of middle people as relational arrangers in the middle of savers and firms in the credit business can bolster their capacity as inner markets for resources. In addition, the money related mediators likewise expect significance in today's reality as capacity for clearing and settling installments, capacity for procurement of an instrument for pooling of trusts and subdivision of shares, it permits procurement of approaches to exchange monetary assets, it permits procurement of approaches to oversee vulnerability and control danger, gives value data, etc.
6. What do meant by Asset Liability Management (ALM) of a financial institution?
Asset Liability Management (ALM) is a senior level administration in charge of supervision/administration of business danger (principally premium rate and liquidity dangers) involves senior authorities from treasury, CFO, business heads producing and utilizing the bank's trusts, credit, and people from the offices having direct connection with premium rate, remote trade and liquidity dangers. The CEO must be the board of trustees' leader. Cutting edge hazard administration now happens from an incorporated way to deal with big business hazard administration that mirrors the way that premium rate danger, credit danger, business sector danger, and liquidity danger are all interrelated.
7. What are the rationale of liquidity & liability management?
The rationales behind liquidity management are as below:
1. Sufficiently guaranteeing liquidity to ensure the organized financing of individuals needs;
2. Giving a reasonable pad to unanticipated liquidity needs;
3. Putting fluid trusts in a way which accentuates the requirement for security and liquidity.
2. Giving a reasonable pad to unanticipated liquidity needs;
3. Putting fluid trusts in a way which accentuates the requirement for security and liquidity.
The rationales underlying liquidity and liability management are as below:
1. Liability management concentrates on money related monetary worth.
2. Liabilities and their associated assets are correspondingly indigent.
3. The stage of risk connected with a given money related target can be decreased.
4. Greater rewards are for the most part anticipated from portfolios with larger amounts of danger. .
5. Expected risk/reward exchange off has a tendency to exacerbate as more limitations are forced
6. Asset and liability cash flows cannot be anticipated with conviction.
7. The overall risk of a portfolio may be diminished through supporting..
8. What are the sources of funds of a commercial bank and what are the regulations imposed on them?
Banks are exceedingly utilized money related foundations, which imply that the vast majority of their trust comes structure acquiring. Be that as it may, much the same as any others business venture, the bank activates reserve from the accompanying two classifications of sources:
1. Funds form own sources:
This source comprises of stores possessed by the keeping money foundation, in particular offer capital, store trust and different stores, held profit, and so on.
2. Borrowed funds:
This source comprises of stores in different sorts of records and borrowings from different banks, Bangladesh bank and different sources. In the event of banks, the acquired stores, essentially the stores in different sorts of records, constitute the significant part of bank's trusts in correlation with the claimed trusts as capital and store. Subsequently, acquired trusts are primary premise of saving money operations.
Regulations imposed on commercial bank by BB:
As a central bank, Bangladesh bank imposed some rules and regulations for banking industry are mentioned below:
1. Minimum capital requirement: Tk. 400 cr.
2. SLR for banks-19%, for Islamic banks-11.5%
3. CRR for banks and Islamic banks-6%
4. Bank rate-5%
5. Repo-7.25%, reverse repo-5.25%
6. Interest rate on credit: Export-7%, Agri.-7%, Industrial term-13%
7. Single borrower exposure limit-35% for funded & non-funded credit
8. KYC, observation on abnormal transactions
9. Classification on performing and non-performing loans
10. Financial inclusion-Opening A/c with Tk.10/00
11. Green Banking
12. Stress testing
13. BASEL-II and Up coming BASEL-III
14. Environmental risk management.
9. Explain the different types of liabilities dealt with the financial institutions with example.
The liabilities are separating into two types i.e. Current and Non-Current.
The distinction is made on the basis of time period.
a) Current Liability:
It is one which the element hopes to pay off inside of one year from the reporting date.
b) Non-Current Liability:
It is one which the element hopes to settle following one year from the reporting date.
Types and examples
Following are examples the common types of liabilities along with their usual classifications.
Liability Classification
*Long Term Bank Loan *Non-current
*Bank Overdraft *current
*Short Term Bank Loan *current
*Trade Payable *current
*Debenture *Non-current
*Tax Payable *Current.
It might be proper to separate a solitary obligation into their current and non-current segments. For example, a bank advance spreading over two years and conveying two equivalent portions payable toward the end of every year would be characterized half as present and half as non-current risk at the origin of credit.The liabilities are into two sorts i.e. Current and Non-Current.
10. What do you meant by non-banking financial institutions and what are its different types?
A non-banking financial institutions (NBFI) is an organization that controlled by the monetary establishments act, 1993 of Bangladesh bank and occupied with the matter of advances, procurement of shares, securities, debentures, securities by Govt.. on the other hand neighborhood power.
A NBFI which is an organization and which has its central business of accepting stores under any plan or course of action or some other way, or loaning in any way is likewise a non-saving money budgetary organization.
NBFIs are doing functions like that of banks; however there are a few differences:
1. A NBFI can’t acknowledge demand deposit.
2. It is not a part of the payment and settlement framework and in that capacity can't issue checks to its clients.
3. Deposit insurance office is not accessible for NBFI investors not at all like in the event of banks.
The NBFIs IS Classified that they are licensed by Bangladesh bank are as follows:
1. Equipment leasing company:
It is the handling of securing the utilization of hardware by method for a rental assertion for a predefined duration of time.
2. Hire purchase Company:
Making so as to rent merchandise portion instalment over the time premise on rent-to-claim course of action that purchaser does not get proprietorship until everything is paid.
3. Loan Company:
Loaning to the others people, gatherings or organizations.
4. Investment Company:
It is an organization that issues securities and is basically occupied with the matter of putting resources into securities. They work together in financing for funding, trader saving money, speculation saving money, shared affiliation, common organization, renting organization and building society would be incorporated as NBFIs.
11. What is financial intermediary and what are the advantages enjoyed by market participants from this?
The most important contribution of financial intermediaries is a consistent and moderately modest stream of stores from saver to last clients or speculators. Money related go-betweens incorporate store foundations, for example, business banks, reserve funds and advance affiliations, investment funds banks and credit unions, which obtain the main part of their trusts by offering their liabilities to the general population for the most part as store. Alongside this insurance agencies and annuity trusts are likewise go about as money related go-betweens. Focal points appreciated by business sector members:
1. Investors can get more choices concerning maturity for their investments & borrowers can get more choices for the length of their debt obligations.
2. Borrowers can get longer term loan at a lower cost.
3. Attaining cost-effective diversification.
4. Lower cost accrue to the benefit of the investor
5. Markets participants get the benefit of using cheques, credit cards, debit cards & electronic transfer of funds through financial intermediaries.
12. Define depository institutions and describe its different types.
Depository Institutions are financial institutions those acknowledges stores. These stores speak to the store's liabilities tolerating foundation. With the trusts raised through stores and other subsidizing sources, vault foundations both make direct advances to different elements and put resources into securities. Their wage is gotten from two sources:
a) the income generated from the loans they make and the securities they purchase, and
b) fee income.
The various types of depository institutions are:
1. Commercial Banks:
It provides numerous services in financial system. The services can classify into
i) individual banking,
ii) institutional banking, and
iii) global banking.
2. Credit unions:
They are normally known as helpful social orders. The reason for credit union is to benefit their individuals' sparing and acquiring needs.
3. Savings and loan associations (S&Ls):
The essential viewpoints behind to giving of trusts to financing the buy of homes. The security for the credits would be the house being financed. S&Ls are either commonly possessed or have corporate stock proprietorship.
4. Saving Banks:
this can be commonly possessed (in which case they are called shared funds banks) or stockholder claimed. The essential resources of reserve funds banks are private home loans and the primary wellspring of establishes is stores.
13. What do you mean by liquidity management and what are its different strategies?
Liquidity management alludes to those exercises inside of a budgetary organization to guarantee that possessions of fluid resources (e.g. money, bank stores and other monetary resources) are adequate to meet its commitments as they fall due, including unforeseen exchanges. Banks are fundamentally in the matter of raising stores and making credits that change fluid liabilities into fluid resources. It has two expansive angles:
a. Asset Liquidity:
It gauges the straightforwardness with which a bank can change over its benefits into money.
b. Market Liquidity:
It gauges capacity to raise capital structure other business members at short notice.
The main strategies that bank takes positively for an effective liquidity management are as follows:
1. Every bank needs to figure a suitable yet particular liquidity strategy.
2. In light of the past data or information, ALCO or liquidity mgt board of trustees must get coveted changes the creation of advantages and liabilities.
3. Constant client association with extensive borrowers, investors and other obligation holders and so on will assist the with saving money to secure obliged stores amid liquidity emergency.
4. Bank ought to get ready alternate course of action including game plan for line of credit with expansive banks and suppliers of credit unfriendly liquidity position emerging from banks particular emergency or general business emergency.
5. The inside standards/cutoff points may be settled for certain kind of exchange that will have an unfriendly effect or liquidity position. For instance: i) obtaining from call currency market and also from repo market, ii) Desired proportions for fleeting liabilities to transient resources, credits to aggregate stores.
2. In light of the past data or information, ALCO or liquidity mgt board of trustees must get coveted changes the creation of advantages and liabilities.
3. Constant client association with extensive borrowers, investors and other obligation holders and so on will assist the with saving money to secure obliged stores amid liquidity emergency.
4. Bank ought to get ready alternate course of action including game plan for line of credit with expansive banks and suppliers of credit unfriendly liquidity position emerging from banks particular emergency or general business emergency.
5. The inside standards/cutoff points may be settled for certain kind of exchange that will have an unfriendly effect or liquidity position. For instance: i) obtaining from call currency market and also from repo market, ii) Desired proportions for fleeting liabilities to transient resources, credits to aggregate stores.
14. Why are financial institutions concerned with liquidity? Or, Importance of liquidity of commercial bank.
Liquidity, or the ability to fund increases in assets and meet unbelievably due, is vital to the progressing suitability of any keeping money association. In this manner, overseeing liquidity is among the most imperative exercises led by banks. Sound liquidity administration can decrease the likelihood of difficult issues. Along these lines, banks must imagine and assess liquidity needs under diverse business situations. Liquidity speaks to the capacity to manage lack of stores and overflow of trusts. Regardless of size of a bank, sufficient liquidity is vital to meet responsibilities when due and to attempt new exchange when alluring. Considering the significance of overseeing liquidity hazard, every bank is obliged to have a suitable approach in such manner which must cover targets of liquidity administration, system for surveying and overseeing liquidity, subsidizing techniques and inside standards including assignment of power and so on.
15. What is an insurance company and what are its various types?
A company that offers insurance policies to people in general, either by offering straightforwardly to an individual or through another source, for example, a representative's advantage arrangement. An insurance agency is normally contained various protection operators. An insurance agency can spend significant time in one kind of protection, for example, life coverage, well being protection, or accident protection, or offer different sorts of protection. Sorts of Insurance Company:
1. Life insurance:
It pays the life's recipient protection approach in the passing's occasion of the guaranteed.
2. Health Insurance:
The risk insured is medicinal medications that the organization pays the protected all or a cost's segment of the therapeutic medications.
3. Property and casualty insurance:
The risk insured by property and setback insurance agencies is harm to different sorts of properties.
4. Liability insurance:
The risk insured against is suit or the danger of claims against the guaranteed because of activities by the safeguarded or others.
5. Disability insurance:
It insured against the failure of utilized persons to gain a salary in either their own occupation or any others.
6. Long-term care insurance:
It insured as tend to the matured who get to be worried about outlasting their advantages and being not able to nurture themselves as they age.
16. What is an investment company & What are its different types?
Public corporation organized to invest in large blocks of securities of differing firms, and to get its capital from issues of shares or units. Speculation organizations give a little financial specialist the benefit of a full time proficient venture administration, and an all that much more extensive spread of danger that it would have been generally conceivable. They are isolated into three noteworthy sorts:
1. Open-end funds / mutual funds -
That have a coasting number of issued shares, and offers or reclaim their shares at their present net resource esteem.
2. Closed-end funds / investment trusts -
That can offer just an altered number of shares that are exchanged on stock trades, more often than not at a rebate to their net resource esteem.
That can offer just an altered number of shares that are exchanged on stock trades, more often than not at a rebate to their net resource esteem.
3. Unit investment trusts / unit trusts -
That offers their redeemable securities which speak to premiums in the securities held by the trust in its venture portfolio.
17. What do you mean by mutual fund? Discuss the different aspects of mutual funds.
A mutual fund is a type of Investment Company that pools cash from numerous financial specialists and puts the cash in stocks, securities, currency business sector instruments, different securities, or even money. The supervisor contributes this cash then keeps on purchasing and offer stocks and securities as per the style directed by the store's plan.
There are several important aspects of mutual funds:
1. Investors in mutual funds own a prorata share of overall portfolio.
2. The investment manager of the common reserve effectively deals with the portfolio, that is purchases a few securities and offers others
3. The value or price of each share of portfolio, called Net Asset Value (NAV), levels with the business estimation of the portfolio short the liabilities of the common trust partitioned by the quantity of shares possessed by the shared store financial specialists.
4. The NAV or cost of the store is resolved just once every day's, at the day end.
5. Every single new speculation into the store or withdrawals from the trust amid a day are evaluated at the end NAV.
5. Every single new speculation into the store or withdrawals from the trust amid a day are evaluated at the end NAV.
18. Define credit risk. What are the three steps in credit risk management process Or, Discuss the risk management process for a Bank/ Financial Institution.
Credit Risk:
Credit risk emerges from the potential that a borrower will neglect to meet its commitments as per concurred terms. It likewise alludes the danger of negative consequences for the money related result and capital of the bank brought on by borrower's default. It originates from a bank's managing people, corporate, banks and money related establishments or a sovereign.
A financial institution employ a four-step procedure to measure and manage institution level exposure are mentioned below:
1. Risk identification:
The institution must perceive and comprehend dangers that may emerge from both existing and new business activities. Hazard distinguishing proof ought to be a proceeding with procedure, and ought to be comprehended at both the exchange and portfolio levels.
2. Risk Measurement:
When risks have been distinguished, they ought to be measured keeping in mind the end goal to focus their effect on the managing an account establishment's productivity and capital.
3. Risk Monitoring:
The establishment ought to put set up a powerful administration data framework (MIS) to screen risk levels and encourage auspicious audit of risk positions and special cases that ought to be visit, convenient, exact, and enlightening.
4. Risk Control:
The organization ought to build up and convey risk breaking points through strategies, guidelines, and systems that characterize obligation and power that ought to serve as an intends to control presentation to different risks.
19. Explain interest rate risk with example.
Interest rate risk is a risk that the estimation of speculation will change because of an adjustment in without a doubt the level of interest rates, in the spread between two rates, in some other interest rate relationship. Interest rate danger influences the estimation of securities more specifically than stocks, and it is a noteworthy danger to all bondholders. As interest rates rise, security costs fall and the other way around. The method of reasoning is that as premium rates build, the open door expense of holding a security diminishes since financial specialists have the capacity to acknowledge more prominent yields by changing to different speculations that mirror the higher interest rate. As illustration, a 5% security is worth more if premium rates diminish following the bondholder gets a settled rate of return with respect to the business sector, which is putting forth a lower rate of return as a diminish's consequence in rates.
20. Define CAMELS rating and write down the composite ratings of this.
A CAMELS rating is an international bank-rating framework where bank supervisory powers rate foundations as per six components. These are :
C - Capital ampleness
A - Asset quality
M - Management quality
E - Earnings
L - Liquidity
S - Sensitivity to Market Risk
Bank supervisory powers allocate every bank a score on a size of one (best) to five (worst) for every variable. The framework helps the supervisory power recognize banks that need consideration.
Rating -1
The composite rating:
Composite Range 1 - 1.4 Description
Strong: Highest rating is indicative of performance is higher.
Rating -2
The composite rating:
Composite Range 1.4 - 2.4
Description :
Satisfactory: Performance is average or above that adequately provides for safe and sound operation.
Rating -3
The composite rating:
Composite Range 2.5 - 3.4
Description :
Fair: It is not satisfactory nor unsatisfactory but characterized by performance of below average quality.
Rating -4
The composite rating:
Composite Range 3.5 - 4.4 Description :
Marginal: performance is below average. It might evolve into weakness that could threat the viability if not changed.
Rating -5 & 6
The composite rating:
Composite Range 4.5 - 5 & 6 Description :
Unsatisfactory: Performance is critically deficient that need immediate remedial attention.
21. Explain the concept of mobile financial services. Discuss the various services offered by it.
Mobile banking refers to the activities of banking and financial services with the help of mobile communications. The scope of offered service may include facilities to conduct bank and stock market transactions, to administer accounts and to access customized transaction.
The mobile banking is consists of 3 inter-related concepts:
i) Mobile accounting,
ii) Mobile brokerage,
iii) Mobile financial information services.
Mobile banking can offer services are:
i) Accounting information:
Mini statement, balance checking, loan & card accessibility, transaction alert, order & stop payment of check, etc.
ii) Payments, deposits, withdrawals & transfers:
Local & bill payment, commercial payments, global fund transfer, etc.
iii) Investment:
Portfolio management service, real time stock quotes, etc.
[As per Central bank DCMP circular in September 2011, the following mobile financial services may be allowed:
1. Disbursement of inward foreign remittances.
2. Cash in-out using mobile account through agents/ bank branches/ ATM's/ Mobile operator’s outlets .
3. Person to business payment i.e. utility bill, merchant payments.
4. Business to person payment i.e. salary, dividend and refund warrant, vendor payments, etc
5. Govt. to person payment i.e. elderly allowances, freedom-fighter allowances, subsidies, etc
6. Person to Govt. payments i.e. tax, levy payments.
7. Persons to person payments
8. Other payments like micro finance, overdrawn facility, insurance premium, DPS, etc.]
8. Other payments like micro finance, overdrawn facility, insurance premium, DPS, etc.]
22. What are the ways in which an investment-banking firm may be involve in the issuance of a new security ?
Investment banking involves managing pools of asset such as closed and openend mutual funds. Investment bankers act as agents on a fee basis or a principal, purchasing the securities from the issuer at one price and seeking to place them with public investors at a slightly higher price. The objective in funds management is to select asset portfolio to beat some return-risk performance benchmark. Since this business generates fees that are based on the size of the pool of asset managed, it tends to produce a more stable flow of income than does either investment banking or trading. Investment banking refers to activities related to underwriting and distributing new issues that can be either first-time issues of debt or equity is already trading seasoned issues. Finally, in addition investment banker operates with corporate securities markets that may participate as an underwriter (primary dealer) in govt., municipal and mortgage-backed securities.
