OCBC banks obtained a request from Singapore

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Transcript OCBC banks obtained a request from Singapore

Unit 3 – The individual as producer, consumer and borrower
FUNCTION OF
MONEY
TYPE OF EXCHANGE SYSTEM
BARTER TRADE
- Exchanging of goods and services
-Required double coincidence of wants to be fair.
- Rate of exchange can vary based on what the
parties feel their goods is worth.
- Saving is also hard it is hard to save in terms of
bulk items like wood or apples etc.
TYPE OF EXCHANGE SYSTEM
Function of Money
1. Money is a medium exchange
As a item that is acceptable by all.
As such it can facilitate exchange
of goods and services.
TYPE OF EXCHANGE SYSTEM
Function of Money
2. Money is a measure of value as
it can be use to represent the
value of goods and services.
TYPE OF EXCHANGE SYSTEM
Function of Money
3. Store of value.
Unlike storing goods as value,
money use little space to store. With
technology, money is represented as
a number in a computer or in
cyberspace. (As in bank accounts)
TYPE OF EXCHANGE SYSTEM
Function of Money
4. As a means of differed payment.
-In the business world, many companies give
allow consumers to buy on credit (buy now
and later pay over a period time).
-Banks allow customers to borrow to buy
properties and payment will be by monthly
instalments.
HISTORY OF MONEY
KISSIE MONEY (AFRICA) metal iron
SPADE MONEY (CHINA)
COWRIE (PACIFIC NATIONS)
SHOE MONEY (CHINA)
METAL COINS (the rise of the Jewish Rothchilds 15th centuary)
What Makes Good Money
(pg.108 – 109 of Moynihan)
a. It must be acceptable
b.It must be durable
c. It must be portable
d.It must be divisible
e. It must not be in abundance
(ie. Must have some degree of
scarcity)
Teaser 1
A bank lends a sum of money at 6% for 10 year to a
customer. As time passes over the 10 years, the prices
of every goods and and services increases by 20% (this
is called inflation).
1.With money as a means of deferred payment, who
benefits at the end of the 10 years.
2.Explain your answer in question 1 in terms of the
stored value of money.
Presenter: HSBC
To Submit: Queenie,
Joaquim, Catherine,
Darren, Jamie, Claudia
Tan
What is Money
1. Money is a medium of exchange
2. Money is a store of value
Because of the 2 characteristic of
money above, our savings in banks and
other financial institutions can be
classified as money which can be
quickly converted in exchange for
goods and services.
The Money Supply
The money supply in an economy consist of the
money circulating in the economy plus the money
(notes and coins) deposited in the banks.
But are coin and notes the only appropriate form of money?
Other Assets That Can Act as Money?
-
Jewelry, Painting, Antiques? Not easy to liquidate in
exchange for goods and services. Value is based on
opinion of professionals and not generally agreed nor
accepted by all.
-
If one holds government bonds, it is easy to sell in
exchange for cash but that depends on its price it will
fetch in the money market. Also it has a maturity date
and cannot get full value until maturity.
Other Assets That Can Act as Money?
- Bank Deposits – Time Deposits (1mth, 3mths,
6mths, 1year etc) are difficult to convert to cash
as it involves a penalty to the depositor if they
tried withdraw cash before the date of maturity.
- Saving accounts – Easier to withdraw in
exchange for goods and services. No penalty.
The Money Market
A market place that exist for those who have
money to lend money to those that need it. The
act of arranging loans or borrowing is called
financial intermediation.
Mostly dominated by banks and is the work of the
banks’s treasury division where banks dealers
borrow and lend money to other banks, financial
institutions and big corporations which have
treasury divisions.
Minimum average loan and borrowing size is
around $10 million.
What is A Bank
It’s a financial intermediary.
Its main function is to borrow cheap and lend
high.
How The Bank Functions
1. Making Loans
OCBC banks obtained a request from Singapore International
Airlines which requires $10 million overdraft over 1 year to
pay for renovation of one of their hangers that houses the
Boeing 777 planes.
Step 1: OCBC goes into the money market and calls
up a few banks to get the best rate. It gets lowest
rate from Mitsui Bank for $10 million at 2% for 1 year
loan.
How The Bank Functions
1. Making Loans
OCBC banks obtained a request from Singapore International
Airlines which requires $50 million overdraft over 1 year to
pay for renovation of one of their hangers that houses the
Boeing 777 planes.
Step 2: OCBC goes back to SIA and informs the Vice
President of Finance that the borrowing rate for the
overdraft of US$10 for 1 year is 2.25% to which the VP
agrees.
How The Bank Functions
1. Making Loans
OCBC banks obtained a request from Singapore International
Airlines which requires $50 million overdraft over 1 year to
pay for renovation of one of their hangers that houses the
Boeing 777 planes.
Step 3: OCBC draws up the overdraft contract to
borrow from Mitsui and lends to SIA. In the process,
OCBC makes 0.25% profit (2.25 – 2.00). In terms of
money profit made, it would be 0.25/100 X US$10
million = $250,000.
(not bad considering that the OCBC dealer merely picked up
the phone and intermediated between Mitsui and SIA)
How The Bank Functions
2. Other bank Services – Charging a Fee
1.Withdrawal from ATM (while holidaying in other countries.
2. Exchanging foreign currencies.
3. Internet Banking
4. Organizing electronic transfer of funds to other countries,
Bankers guarantee.
5. Issuing debit and credit cards
6. Providing letters of credit so that trade between parties can
take place.
The Central Bank
Function of a Central Bank
• It issues currency for the nation.
• It manages the payment to and from the government.
(incorrect as per Moynihan pg.119. This is the role of
the ministry of finance)
• It manages the national debt (Moynihan pg119,
incorrect as this is also a function of the MOF)
• Supervises the banking system like the amount of cash
reserves to be kept by banks.
• Lender of last resort to all commercial banks.
• Manages the reserves of the country.
• Operates the monetary policy of the country. (policy to
help the country out of a economic recession or to bring
down inflation)
Teaser 2
The following questions concern the central bank
and commercial banks:
To Answer
1. What are the differences in their function.
CIMB
2. What services do they provide and to whom.
ABC
3. How are they organized and controlled.
CITIBANK
4. Of what importance are they to the economy.
Rothschild
The Stock Market
A stock refers to money that is raised by a joint
stock company (a company with many
shareholders), a corporation or the government
(government bonds).
Who Owns a Company?
A company is owned by people who hold shares or
equity of the company. These equity are also referred
to as stocks.
Because there are many people who own shares in a
company, we call this joint stock meaning that the
company is jointly owned by many shareholders.
What Benefits in Financial Terms Is there
for Shareholders
Whenever a company is profitable and makes profits, it will share
some of this profits to the shareholders through a dividend.
However, this share of dividend is different for differ classes of
shareholders:
- Preferred Stock shareholders – They will get to have dividend
paid to them first before other forms of shareholders (like the
common stock shareholders). Their dividend is often a fixed
percentage of the value of the nominal value of the share. These
shares however do not carry voting rights.
- Common stock shareholders – They will be paid the left over
dividend after having paid the preferred shareholders first. This
could sometimes mean very little or nothing left for common
stock shareholders. They however, have voting rights and can
vote out the members in the board of directors.
What do companies do in the stock
market?
-Companies try to raise funds to further their operations in a stock market.
-Each time they do this they go to the stock market to float their shares.
A stock market consist of buyers and seller of stocks and shares.
Whoever buys a share of the company gets to own a smaller portion of the
Company.
-Once money is raised, the funds will go to the permanent or what is
called the paid up capital of the company.
IT IS NOT EASY TO RAISE FUNDS ON A STOCK EXCHANGE AS THERE ARE MANY
PRE-LISTING OR FLOATATION CONDITIONS THAT HAS TO BE MET PRIOR
FLOATION.
Government Stocks
Government Stocks are not in the form of equity or shares. It
is in the form of government bonds and treasury bill (bills are
are form of government bonds but with a loan period of less
than 1 year).
This is a 10
year US Gov.
Bond that pays
4% per annum
on $10,000.
The holder
gets back
$10,000 at the
end of the 10th
year.
Nobody private individual or corporation can own a
government, as such governments do not issue shares.
Function of A Stock Exchange