Introductory Beginning

A Guide to Financial Institutions by Charles R. Geisst (auth.)

By Charles R. Geisst (auth.)

An introductory survey of economic associations in Britain and the us. Discusses the constitution and services of business banks, construction institutions, funding banks, lifestyles insurance firms and pension money, and American federal companies. additionally incorporates a bankruptcy at the monetary deregulation and occasions of the Nineteen Eighties that helped create the present monetary weather. comprises examples and tables during the text.

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1"'his name has been adopted to show that the central bank in question is intervening only to prop up or depreciate· its currency against others momentarily but that the action itself should only be taken as temporary. Normally, this sort of desired effect is had by lowering or raising interest rates in the domestic economy in order to affect the exchange rate. 5 The action is not intended to alter 22 A Guide to Financial Institutions the economic outlook for the domestic economy and is not to be taken as a long-term indication of monetary policy.

Toward the end of the 1970s, the SDR became used in some commercial transactions but in a very limited way. Some eurobond issues were denominated in them as well as some bank time deposits. In either case, the financial asset was a purely commercial creation; it had nothing to do with IMF policy. Any commercial bank or investment bank willing to deal in SDRs simply created an asset based upon the basket value of the currency and quoted the official IMF rate. A customer paid for the asset in his native currency and received the same, or other, currency back upon liquidation of the SDR asset.

The most serious pitfall a bank can encounter occurs when a certain amount of loans become non-performing; that is, the borrower effectively defaults in its payments of principal or interest. This interrupts the projected cash flow of the lender and forces it to pay depositors' interest out of other resources, thereby cutting its profit margin. If non-performing loans increase, eventually a loan loss reserve will have to be created in order to offset unforeseen or anticipated defaults in the future.

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