Banking

Banking — No Comments
17
Feb 11

Wire Transfer Process

In this electronic age everybody wants to have their work quickly and same applies to transfer of money between two parties. Wire transfer refers to process by which banks transfer money from one account to another account through electronic medium. The process through which bank effect the wire transfer is explained below -

  1. Wire transfer process starts when the person or a company approaches the bank and request or order the bank to transfer certain amount of money into the account of other person or a company.
  2. Banks then demands the account number and IFSC or BIC codes so that bank can transfer the amount to the beneficiary.
  3. After bank receives the code and account number it transmits the message through SWIFT which is the acronym for Society for Worldwide Interbank Financial Telecommunication, to the bank in which the beneficiary account is there.
  4. After receiving this message which contains the payment instructions, the receiving bank will begin the process of transfer of money from sender’s account to beneficiary account, which may take 12 hours to 48 hours.

For effecting the wire transfer both sending bank and receiving bank should have mutual account with each other so that receiver does not have any problems, Banks charges fees from clients for providing wire transfer facility.

Banking — No Comments
4
Jan 11

Types of Guarantee

Guarantee refers to the promise made by a person or institution to the third party for the performance of other party. For example if there are three people A,B and C, so if A gives guarantee to B that C will perform certain work, and in case of C does not perform the work than A will compensate B. Banks also provides guarantees for their clients, let’s see some of the guarantees which banks provides –

1. Financial Guarantee – This type of guarantee is given be the bank to the creditor on behalf of debtor that debtor will pay his or her debt to the creditor on time and in the event of default made by the debtor, bank will compensate to the credit for the loss due to failure of repayment by the debtor.

2. Performance Guarantee – Performance guarantee is often given by the bank on the behalf of contractor who undertakes to complete the contract on time. The company which has awarded the contract to contractor demand guarantee that work will completed on time, and in this case bank will give performance guarantee that contractor will complete the contract on stipulated time, and if he is not able to complete it on time bank will compensate the company for the losses due to such delay in work.

Apart from above guarantees banks also undertake to pay for goods and services in case of import and export of goods and services, however it is not guarantee in strict sense because in this case the liability of the bank is primary, however in case of guarantees the liability of banks is secondary which implies that bank will pay only when the party for which it is given guarantee defaults.

Banking — No Comments
31
Dec 10

What is Unsecured Credit Card

A credit card is a plastic card which enables the buyer of a good or service to buy them now and pay for it later. Banks all over the world provides this facility of credit card to their customers. An unsecured credit card is one which is issued without any security from the customers; it is generally issued to those customers who have good credit history.

The limit which is given on unsecured credit card depends on the customer to which it is being issued. Unsecured credit card has the advantage that a person who has unsecured credit card has to pay fewer charges when it comes to interest rate and upfront fees, unlike normal credit card which has higher interest rate charges. However unsecured credit cards are given only to select customers who have excellent credit rating which is decided by the bank on certain fixed parameters which differs from one bank to another. Unsecured credit cards are prevalent in western countries like USA and UK and are not popular in other parts of world.

Banking — 1 Comment
20
Dec 10

Features of Money Market

The money market is a market where short term securities are bought and sold, which implies that in money market securities which are of less than 1 year maturity are traded in the money market. It includes securities like certificate of deposits, commercial paper, treasury bills etc… Given below are the various function which are performed by the money market -

1. Money market is a medium through which demand and supply for short term funds are matched and therefore it helps the financial institutions as well as the banks to meet there short term demand for money. There are situations when banks need money only for 2 or 3 days and that’s where money market can be extremely helpful.

2. Through money market central bank can also influence the general liquidity available with the banks and general level of interest rates in the economy. Central banks can perform this by either purchasing or selling the treasury bills in money market.

3. Money market also helps those entity’s which have excess cash with them, because those entity’s can lend that cash in money market to the borrowers and earn interest on idle funds available with them.

4. Money market also keeps the short term interest rates in check by matching the requirements of lenders with borrowers of money.

Banking — No Comments
7
Dec 10

Factors that Determine Interest Rates

An interest rate is the rate at which borrower of money takes money from lender of the money. Interest is calculated as a percentage of the principal balance taken by the borrower of the money. Interest rates never remain same they keep on changing so why it changes well the answer to it is that interest rate depend on many factors, let’s look at some of the factors which determine the rate of interest -

1. The first and foremost factor which affect the interest rate is the demand and supply of money, if the demand for money is higher than supply than it will lead to increase in interest while if demand is lower than supply of money then it will lead to decrease in interest rates.

2. Another factor which influences the rate of interest is the rate of inflation, if inflation is high then government increases the interest rates for borrowing in order to contain the inflation.

3. Interest rate is also dependent on the growth rate of the economy, so if the economy is strong then government tend to keep interest rate high while if the economy is in recession or growing at lower rate than interest rate is kept low so that economy can grow at faster pace.

Apart from above factors interest rate at which loan is given to an individual is determined by several factors like creditworthiness of the individual, nature of security given for taking the loan, source of income of the individual who is taking the loan etc…..

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