Question

What are four major sources of funds for banks? What alternatives does a customer who wants to have all their financial services provided by one financial institution. Who Is correct? Use the Internet to learn more about this issue and then formulate your own opinion. What is the most common reason that banks issue bonds?

Answer 1

Four major sources of funds for banks are as follows :-

1.Transaction Deposits

A deposit having immediate and full liquidity.

2. Saving Deposits

Deposits on which interest is paid.

3. Time Deposits

Deposits that cannot be withdrawn before a set date or completion of a time period.

4. Money Market Deposit Account

An deposit account that pays interest according to current interest rates in money market.

Alternatives a customer have :-

Apart from Central bank and retail banks customer have following 7 major alternatives :-

1. Internet Banks

2.Credit Unions

3.Savings and Loan associations

4.Investment Bank and Companies

5. Brokerage Firms

6.Insurance Companies

7.Mortgage Companies

Which form is correct depends upon needs and objective of investment of the individual investor. For example Credit unions serves specific demographic where as insurance companies helps individuals transfer risk of loss.

Banks issue bonds to raise capital for their fixed assets. One of more common reason is that banks issue bonds to meet new regulatory framework that says any bank bailout should be supported by shareholders and then by private creditors.