Finance 11-2

Finance 11-2 - Financial Markets and Institutions Professor...

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Financial Markets and Institutions Professor Doug Smith Thrifts and Consumer Finance Operations Concept Questions Assignment 11-2 Jamie Hinson December 3, 2007
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Question number one on page 640 from the Questions and Applications section is: Explain in general terms how savings institutions differ from commercial banks with respect to their sources of funds and uses of funds. Discuss each source of funds for savings institutions. Identify and discuss the main uses of funds for savings institutions, asked by Jeff Madura, author of Financial Markets and Institutions . Savings institutions rely on most of their funds generating from savings such as passbook savings and certificate deposits and money market deposit accounts. Commercial banks focus on business and residential commercial loans. There are three main sources of funds that savings institutions use when needed. “First, they can borrow from other depository institutions that have access funds in the federal fund market. The interest rate on funds borrowed in this market is referred to as the federal funds rate. Second, they can borrow at the Federal Reserve’s discount window. The interest rate on funds borrowed from the Fed is referred to as the discount rate. Third, they can borrow through a repurchase agreement (repo). With a repo, an institution sells government securities, with a commitment to
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Finance 11-2 - Financial Markets and Institutions Professor...

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