MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
Lesson 1:
Financial Institutions and Intermediaries:
An Overview
ASSIGNMENT
REVIEW QUESTIONS
Direction: Answer comprehensively the following questions.
1.
Describe the nature of the basic services of financial institutions.
-These financial institutions accept deposits and offers
checking and savings account services; make business,
personal, and mortgage loans; and provides basic financial
products like certificates of deposit (CDs). They may also act
as payment agents via credit cards, wire transfers, and
currency exchange.
2. What is considered the most important and significant financial intermediary in our
financial system.
-Banks are the most popular financial intermediaries in the
world. They come in multiple specialties that include saving,
investing, lending, and many other sub-categories to fit
specific criteria.
3. Give some services offered by a universal bank.
-A universal bank typically offers a wide range of financial
services to both individual and corporate customers. The
services they offered are retail banking, corporate banking,
investment banking, wealth management, asset management,
insurance services and foreign exchange services.
4. What is the nature of the services of “Pension funds” as a financial intermediary?
-Pension funds serve as a financial intermediary by providing
long-term investment management and retirement benefit
services. Their primary nature of services revolves around
helping individuals accumulate funds during their working
years and then distributing those funds as retirement
benefits. The nature of services provided by pension funds
involves helping individuals save for retirement, managing and
investing those savings, and ultimately distributing
retirement benefits. By acting as a financial intermediary,
pension funds play a crucial role in facilitating long-term
wealth accumulation and retirement security for individuals.
MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
5.
Give and explain briefly the three main types of finance companies.
-The three main types of finance companies are:
Consumer Finance Companies: Consumer finance companies
specialize in providing financing options to individual
consumers. They offer various types of loans and credit
facilities to meet the personal financial needs of consumers.
These may include personal loans, auto loans, credit cards,
installment financing for purchases, and lines of credit.
Commercial Finance Companies: Commercial finance companies
focus on providing financing solutions to businesses. They
offer a range of financial services and products to support
the working capital needs, expansion plans, and equipment
purchases of companies.
Mortgage Finance Companies: Mortgage finance companies
specialize in offering mortgage loans to individuals and
businesses for the purchase or refinancing of real estate
properties. They focus on providing funding for residential
mortgages, commercial mortgages, and real estate development
projects. Mortgage finance companies evaluate the
creditworthiness of borrowers, assess the value and potential
risks of the underlying properties, and offer mortgage options
with specific interest rates, repayment terms, and loan-tovalue ratios.
MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
Lesson 2:
Basics of Commercial Banking
ASSIGNMENT
REVIEW QUESTIONS
Direction: Answer comprehensively the following questions.
1.
What are the primary source and use of funds of a commercial banks?
-The primary sources and uses of funds for commercial banks
are deposits, borrowings, and equity capital. The use of funds
are loans and advances, investments, reserves and liquidity,
payments settlements and other operations.
2. Give and explain the nature of a commercial banks assets.
- The nature of a commercial bank's assets can be
characterized by a combination of liquidity, income
generation, and risk profile. Commercial banks hold a variety
of assets on their balance sheets to generate income, meet
customer demands, and manage risk. The nature of a commercial
bank's assets reflects a balance between liquidity, income
generation, and risk management. The composition and mix of
assets depend on the bank's risk appetite, business strategy,
regulatory requirements, and market conditions. Banks strive
to maintain a diversified asset portfolio to manage risk
effectively while generating sustainable income for their
operations.
3. Give and explain briefly the primary liabilities of a commercial bank.
-The primary liabilities of a commercial bank represent the
sources of funds that the bank uses to finance its operations
and meet customer demands. These liabilities include:
Deposits: Deposits are the most significant liabilities of
commercial banks. Individuals, businesses, and other entities
deposit their money into various types of accounts offered by
the bank, such as savings accounts, current accounts, and time
deposits (such as certificates of deposit). Deposits provide a
stable and low-cost source of funding for the bank
Borrowings: Commercial banks may also borrow funds from other
financial institutions, such as other banks or the central
MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
bank, to supplement their funding. Borrowings can be shortterm, such as interbank loans or repurchase agreements repos),
or long-term, such as issuing bonds or borrowing from the
central bank's lending facilities
Debt Securities Issued: Commercial banks can issue debt
securities, such as bonds or commercial paper, to raise funds
from investors. These debt instruments represent a promise by
the bank to repay the principal amount borrowed along with
interest over a specified period.
Other Liabilities: Commercial banks have other liabilities
that include various obligations and payables. These can
consist of accrued expenses, operational payables (e.g.,
salaries, rent, and utilities), tax liabilities, and
provisions for potential obligations.
4. Discuss how compliance with reserve requirements of the BSP affects the financial
position of a commercial bank.
-Compliance with reserve requirements set by the Bangko
Sentral ng Pilipinas (BSP) has a significant impact on the
financial position of a commercial bank. Reserve requirements
are regulations that mandate commercial banks to hold a
certain percentage of their deposit liabilities as reserves
with the central bank. It's important to note that the
specific strategies employed by commercial banks may vary
depending on factors such as the bank's size, market focus,
risk appetite, and regulatory environment. Banks continuously
assess and adjust their strategies to adapt to changing market
conditions and regulatory requirements, aiming to maximize
return on assets while ensuring prudent risk management.
5. What basic strategy do commercial banks follows to maximize return on its assets?
-Successful commercial banks apply the ALM concept (Asset and
Liability Management). ALM is a strategy for managing the
overall balance sheet and off-balance sheet structure of a
bank, which should ensure satisfactory profitability,
efficient management of assets and liabilities and control of
bank risk management.
MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
Lesson 3:
Expanding the Boundaries of Banking
ASSIGNMENT
REVIEW QUESTIONS
Direction: Answer comprehensively the following questions.
1.
Give and explain the major activities of banks for the last 5 decades.
- Over the past five decades, banks have witnessed significant
changes in their activities and operations due to advancements
in technology, globalization, and shifts in regulatory
frameworks. Here are the major activities of banks during this
period:
1. Traditional Banking Services: Banks have continued to
provide traditional banking services such as accepting
deposits, extending loans, and facilitating payments.
However, these services have evolved with the introduction
of new delivery channels and digital banking platforms.
Customers can now access their accounts, make payments,
and conduct banking transactions through online and mobile
banking channels, reducing their reliance on physical
branches.
2. Globalization and International Banking: Banks have
expanded their presence globally and engaged in crossborder activities. They offer services such as trade
finance, foreign exchange, international remittances, and
correspondent banking to facilitate global trade and
financial transactions. Banks have established
international branches, formed strategic alliances with
foreign banks, and leveraged technological advancements to
enhance their international banking capabilities.
3. Investment Banking and Capital Markets: Banks have
expanded into investment banking activities, including
underwriting securities, advising on mergers and
acquisitions, and facilitating capital market
transactions. They engage in activities such as initial
public offerings (IPOs), debt issuances, equity research,
and securities trading. Investment banking divisionswithin
banks provide financial advisory services to corporations,
governments, and institutional clients.
MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
4. Asset Management and Wealth Management: Banks have
developed robust asset management and wealth management
divisions to cater to the needs of high-net-worth
individuals and institutional investors. They offer
services such as portfolio management, investment
advisory, retirement planning, and estate planning. Banks
manage mutual funds, pension funds, and other investment
vehicles, aiming to generate returns and preserve capital
for their clients.
5. Technological Advancements and Digital Transformation:
Banks have embraced technological advancements and
undergone a significant digital transformation. They have
introduced online banking platforms, mobile apps, and
digital wallets to provide convenient and efficient
services to customers. Banks have implemented advanced
technologies such as artificial intelligence, machine
learning, and data analytics to enhance risk management,
fraud detection, and customer experience.
These activities highlight the transformation and
diversification of banking services over the past five
decades, driven by technological advancements, globalization,
regulatory changes, and evolving customer demands. Banks have
adapted to these changes to provide a wide range of services
while managing risks and meeting regulatory obligations.
2. What is meant by "off-balance-sheet" activities of commercial banks? Give
examples.
-"Off-balance-sheet" activities refer to financial
transactions and obligations that are not recorded on a
commercial bank's balance sheet but still have an impact on
its financial position and risk profile. These activities do
not directly affect the bank's assets and liabilities but can
have significant implications for its profitability,
liquidity, and overall risk exposure. Off-balance-sheet
activities allow commercial banks to expand their services,
generate fee income, and manage risks. However, these
activities also introduce potential risks and exposures that
need to be carefully managed, monitored, and disclosed to
stakeholders and regulators.
MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
3. Why are investment banks considered engaged in "shadows banking"?
- Investment banks are sometimes considered engaged in "shadow
banking" due to their involvement in activities that resemble
traditional banking functions but operate outside the scope of
traditional banking regulations. Shadow banking refers to a
system of credit intermediation that occurs outside the
traditional banking sector, involving non-bank financial
institutions and entities.
4. What are sources of income of investment banks?
- Investment banks generate income from a variety of sources.
Here are the primary sources of income for investment banks:
1. Investment Banking Fees: Investment banks earn significant
income through investment banking activities. These
include providing advisory services on mergers and
acquisitions (M&A), underwriting securities offerings, and
assisting clients with capital raising activities.
2. Trading and Market-Making: Investment banks engage in
trading activities across various financial markets,
including equities, fixed income, currencies, and
commodities. They trade on behalf of clients or for their
own accounts, aiming to generate profits from market
movements and price fluctuations. Investment banks also
act as market-makers, providing liquidity by quoting bid
and ask prices for securities and derivatives.
3. Asset Management and Wealth Management: Investment banks
often have asset management divisions that manage
investment portfolios for institutional investors, highnet-worth individuals, and retail clients.
5. Distinguish between the industry coverage groups and financial services group
within the organization of investment banks.
- Within the organization of investment banks, industry
coverage groups and the financial services group are two
distinct divisions that serve different functions. Here's a
distinction between these two groups:
1.Industry Coverage Groups: Industry coverage groups, also
known as sector teams or industry groups, are specialized
teams within an investment bank that focus on specific
industries or sectors. The purpose of industry coverage groups
is to provide tailored financial and strategic advice to
clients operating within those industries. These groups have
in-depth knowledge and expertise in particular sectors,
allowing them to understand the unique dynamics, trends, and
challenges faced by companies in those industries.
MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
Key features of industry coverage groups include:
- Expertise: Industry coverage groups consist of professionals
who have specialized knowledge and experience in specific
sectors, such as healthcare, technology, energy, or consumer
goods. They stay updated on industry trends, regulatory
changes, and market developments to offer industry-specific
insights to clients.
- Relationship Building: These groups are responsible for
building and maintaining relationships with clients within
their respective sectors. They work closely with companies,
conducting industry research, identifying potential
opportunities, and providing strategic advice for mergers,
acquisitions, and capital raising activities.
- Client
specific
in-depth
clients,
with the
Coverage: Industry coverage groups focus on a
set of clients within their sector. They develop an
understanding of the needs and goals of these
providing tailored solutions and advice that align
specific industry dynamics and requirements.
- Deal Execution: When industry-specific transactions, such as
mergers, acquisitions, or capital raises, take place, industry
coverage groups collaborate with other divisions, such as the
mergers and acquisitions (M&A) or capital markets teams, to
execute the transactions successfully. They bring industry
expertise and insights to the deal-making process.
2. Financial Services Group: The financial services group
(FSG) within an investment bank is a specialized division that
focuses on serving clients within the financial services
industry, including banks, insurance companies, asset
managers, and other financial institutions. Unlike industry
coverage groups, which cover specific industries outside of
finance, the financial services group concentrates exclusively
on the financial sector.
Key features of the financial services group include:
- Sector Expertise: The financial services group has
specialized knowledge and understanding of the unique
dynamics, regulations, and challenges within the financial
services industry. They are familiar with banking operations,
insurance products, asset management strategies, and
regulatory frameworks governing financial institutions.
- Relationship Management: The financial services group builds
and manages relationships with financial institution clients,
including large banks, insurance companies, and asset
managers. They offer financial advisory services, help clients
MAGBANUA, NICOLAS I J. BSA 3-A
COLLEGE OF BUSINESS AND ACCOUNTANCY
INSTRUCTOR: MRS. ELAINE KRYSTA SORIANO -PONDO
navigate regulatory requirements, and provide solutions
tailored to the specific needs of financial institutions.
- Transaction Support: The financial services group supports
financial institution clients in executing strategic
transactions, such as mergers, acquisitions, capital raises,
or divestitures. They work closely with other divisions, such
as the M&A team or capital markets group, to provide industryspecific expertise and guidance throughout the transaction
process.
- Market Insights: The financial services group provides
market research, analysis, and insights on industry trends,
regulatory changes, and competitive landscape within the
financial services sector. They assist clients in identifying
growth opportunities, evaluating market risks, and developing
strategic plans to enhance their competitive position.
While industry coverage groups focus on specific sectors
outside of finance, the financial services group is dedicated
to serving clients within the financial services industry
itself. Both groups play important roles in providing
specialized advice, relationship management, and transaction
support to clients, leveraging their respective industry
expertise to deliver tailored solutions.