CHAPTER 17

Transaction Deposits; checking accounts
 Commercial accounts non-interest bearing
 Interest bearing checking accounts


Savings Deposits; pass-book savings
Time Deposits; short-term CDs
 Managing Term risk
 Penalties for early withdrawal
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D.
Money Market Deposit Accounts; providing
higher yields via T-bills, S-T securities
 Provide better returns to customers with large balances
 Provide roll-up services for commercial clients
Eurodollar Borrowings; more by businesses
F. Bonds/Stock Issued by the Bank; raising long-term
capital
E.
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Cash; transaction needs

Bank Loans; to create assets (loans to bank
customers)

 Working Capital Loans; important source of S-T liquidity for
firms
 Bridge loans for LBO, interim financing, etc
 Lines of Credit
 Importance of Prime rate
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Investment Securities; purchase of government
and corporate bonds
D. Lending in Federal Funds Market; lending excess
reserves
E. Eurodollar Loans; correspondent bank
relationships or foreign branches
C.
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Federal Funds: borrowing from other banks (overnight)

Borrowing from the Federal Reserve Banks;
capital / reserve requirements

 Cheapest source of lendable funds or to make up short-falls in
reserves
 Increasingly a bank of last resort
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Loan Commitments (for LBO)

Standby Letters of Credit (especially for
Import/Export financing)

Swap Contracts (Interest rate and Currency)

* Generate fee income
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What are the principal sources of funds for banks?
What are the principal uses of funds for banks?
In what ways can a bank use the Federal Funds
market?
How does a bank create profit via the fractional
reserve system?
How does the Electronic Funds Transfer (EFT)
benefit the banking system?
Q&A: 1, 2, 7, 12, Interp: c
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