13 17 How does a bank gain access to funds from the Eurocurrency markets Access

13 17 how does a bank gain access to funds from the

This preview shows page 11 - 13 out of 21 pages.

13-17. How does a bank gain access to funds from the Eurocurrency markets? Access to these funds is obtained by contacting correspondent banks by telephone, wire, or cable. 13-19. What is commercial paper? What types of organizations issue such paper? Commercial paper consists of short-term notes, with maturities ranging from three or four days to nine months, issued by well-known companies to raise working capital. The notes are generally sold at a discount from their face value through security dealers or through direct contact between the issuing company and interested investors. Commercial paper is a high- quality, short-term debt obligation with an excellent credit rating to provide for short-term cash needs. There are two types of commercial paper. The first type is industrial paper generally issued by industrial companies to purchase inventories of goods or raw materials. The second type if finance paper is issued mainly by finance companies or financial holding companies to purchase loans of the books of other financial firms in the same organization so that more loans can be made. 13-21. What long-term nondeposit funds sources do banks and some of their closest competitors draw upon today? How do these interest costs differ from those costs associated with most money market borrowings? Long-term nondeposit funds include mortgages, capital notes, and debentures. Generally, the interest costs on these funds sources are substantially higher than money market loans but are more stable usually. 13-22. What is the available funds gap? The funds gap is the difference between current and projected credit and deposit flows that creates a need for raising additional reserves or for profitably investing any excess reserves that may arise. The difference between current and projected outflows and inflows of funds yields an estimate of each institution’s available funds gap. 13-24. What factors must the manager of a financial institution weigh in choosing among the various nondeposit sources of funding available today? A manager must weigh factors such as relative costs, risk, length of time funds are needed, size of the institution and its funding need, and regulations in choosing what nondeposit funds sources to use. Other factors held constant, management will seek out the lowest cost nondeposit funding sources available subject to the risk of availability problems and the danger of interest- rate volatility. When funds are needed for longer periods, negotiable CDs and Eurodollars are usually the preferred sources whereas very short-term cash needs usually will be met by Federal funds and RPs or by borrowing from the Federal Reserve banks. However, regulations impose reserve requirements on some funding sources (e.g., CDs) which increases their cost and these rules limit access to some sources (e.g., borrowings from the Fed's Discount Window).
Image of page 11
16-1. In what ways does the lending function affect the economy of its community or region?
Image of page 12
Image of page 13

You've reached the end of your free preview.

Want to read all 21 pages?

  • Fall '16
  • Thu Trang
  • Debt, Financial services, Mortgage loan, Deposit account

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors