Suggested Solutions for Tutorial 2

Suggested Solutions for Tutorial 2 - 1 Suggested Solutions...

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1 Suggested Solutions for Tutorial 2 Please note that following suggested solutions are only very basic points and you need to read the textbook and other reference materials for better understanding. 1. You are travelling to work by train when a student seated next to you notices that you work for a bank. She asks you what a bank is, why we have banks and what they do. In your own words, respond to her questions. commercial banks are the dominant group of institutions within the financial system they are financial intermediaries—attract savings and investment from surplus entities in the economy, and substitute their credit, and provide funds to deficit entities they are also financial services groups—provide a range of other products and services, for example, financial planning, risk management, off-balance-sheet transactions obtain funds through active liability management use funds by providing loans to customers (individuals, business and government) and investing in securities are an important conduit for economic growth within a country regulated and supervised, for example, APRA in Australia 4. A customer has approached a commercial bank seeking to invest funds for a period of six months. The customer is considering lodging the funds in a term deposit or, alternatively, purchasing a negotiable certificate of deposit. (a) Explain each of these investment products to the customer. Term deposit: pays a fixed interest rate for the nominated fixed investment period rate of interest will be bank’s carded rate for that term and amount interest may be payable periodically (e.g. monthly) or at maturity principal is repaid at maturity Certificate of deposit: discount security issued by a bank
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This note was uploaded on 08/30/2011 for the course AFF 1000 taught by Professor Chalmers during the Three '11 term at Monash.

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Suggested Solutions for Tutorial 2 - 1 Suggested Solutions...

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