Banking_ financial services Methods of payment

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					Banking, financial services.
Methods of payment


    Varga Erika
    Assistant professor
    Department of Foreign Languages
    Károly Róbert College, Gyöngyös
    OUTLINE
   Glossary
   The financial institutions (definition, types)
   The two-tier banking system
   Central banks and their functions
   Financial services (definitions)
   Application for a loan
   Methods of payment (cash and cashless)
method of payment    pension fund
term                 insurance company
two-tier             credit union
apply, application   deposit
loan                 corporate client
credit               cater for
fund                 mortgage
commercial bank      current account
merchant bank        accumulate
building society     dividend
securities           lender of last resort
share                interest rate
subordinate          exchange rate
formulate            conduct transfer
banknote             issue
coin                 savings account
reserve              deposit account
gold bullion/ingot   current account
handle               money order
cater for            standing order
overdraft               card holder
hire purchase           at regular intervals
instalment              arrangement
counselling             hand in
L/C= letter of credit   security/collateral
merger and              guarantor
acquisition (M&A)       assessment
withdraw                approval
overdraw                clear a cheque
advanced notice         banker’s draft
supplier
denomination
ATM /cashpoint
debit
bill of exchange
(B/E)
drawn at sight
revocable
irrevocable
balance
The banking system
  1. The definition of the financial institutions:
     Although they differ, they have one thing in common:
        -collect funds from the public and
        -loan them out in different forms
  2. The types of the financial institutions:
 Commercial (clearing) banks
 Merchant banks (issuing or accepting houses)
 Building societies (US: thrifts)
 Pension (superannuation) funds
Insurance companies
Credit unions (US)

 Detailed descriptions:

 -Commercial banks issue deposits, make loans and
provide services both to the members of the public and to
the corporate clients while
 -Merchant banks only cater for the corporate clients
with the same services.
 -Building societies take mortgage loans and deposits by
offering current accounts to members
 -Pension funds earn interests and dividends from the
accumulated funds and sometimes part of banks or
-Insurance companies: loan out funds and invest in
 government securities or shares
-Credit unions: co-operately owned by members who are
 given loans, chequebooks, life assurance etc.

The above-mentioned institutions are part of a two-tier
banking system.

3. The definition of the two-tier banking system:
A hierarchical, subordinate relationship when the
central banks occupies the first tier and the above-
mentioned ones are on the second tier. (In Hungary: since
1987!)
4. The functions of central banks:

   control and formulate monetary and fiscal policy
   issue banknotes and coins (sole right)
   store reserves (e.g. gold bullion or gold ingot)
   handle government borrowing
   act as the other banks’ bank (lender of last resort)
   set and control interest and exchange rates
   do business with international institutions (e.g. IMF)
   conduct money transfer to other countries
    The names of the central banks:

   in Hungary: the National Bank of Hungary
    in GB: Bank of England
     ( second-tier banks = the Big Four: Lloyds, Barclays,
       National Westminster (Nat West), Midland)
    in the USA: Fed (Federal Reserve System)
     - 12 federal reserve districts with one bank per each
     - 1 Federal Reserve Board in Washington D.C.
Financial services
Banks on the second tier perform the following services:
1. Savings: issue savings and deposit accounts, trade with
    government securities and pension schemes
2. Payment: issue current accounts, travellers' cheques,
    arrange e-transfer, money and standing orders
3. Lending: give loans, credits (issue credit cards), mortgage,
    overdrafts, hire purchase (instalment system)
4. Other: insurance, safe, foreign exchange, counselling,
    issuing L/C, factoring, leasing, status reports, advice on
    markets, investment, mergers and takeovers etc.
Some useful definitions:
Current account: an arrangement which allows the
customer to pay in and withdraw money without giving
notice.
Savings account: an account for personal savings with a
higher interest.
Deposit account: pays high interest but upon withdrawal,
the bank needs advanced warning.
Credit card: a plastic card issued by the bank to allow the
card holder to borrow money and pay for the goods later
Standing order: giving right to the bank to pay a certain
amount to another account at regular intervals (e.g.the
bills)
Bank loans
Bank loan: an arrangement about lending money when
the customer agrees to pay the money back after a certain
period of time with some interest.

The process of applying for a loan:
1. hand in the application
2. provide collateral /security/ and guarantors
3. get a positive assessment, approval from the bank
4. take out the loan
5. repay it in instalments
    Methods of payment
    1. Cash: usually for small amounts in private life
    2. Cashless: A/ payment before delivery:
                      CWO (cash with order) = credit
                   B/ payment after delivery/open account:
   Cheque: a slow procedure since it has to be cleared
   Banker’s draft: the bank sends the draft to the supplier’s
    bank who is given immediate credit
   Telegraphic transfer: the fastest and the most expensive
    one, an inter-bank communication via cable/Internet
    (e.g.Western Union)
   International money order: may be purchased from the
    bank in different denominations and posted to the supplier
   Plastic cards: safe (PIN code), but not all the time!
    Sub-types: a) bank card: issued to withdraw money
    from an ATM /automated teller machine/ (cash point)
                 b) credit card: allows the holder to overdraw
    the limit
                 c) debit card: the card is immediately debited
    through the EPOS (electronic point of sale) system
   Documentary bill of exchange (B/E): a demand for
    payment from the supplier on a printed form. It can be
    drawn at sight or be payable after a certain number of
    days.
       Letter of credit (L/C): the most commonly used form.
     It is an inter-bank communication.
    Steps:
    1. The importer and the exporter agree on a sales contract and terms
    2. The importer asks his bank (the issuing bank) to open an L/C in the
     exporter’s favour
    3. The issuing bank sends it to the exporter’s bank (advising bank)
    4. The exporter presents the shipping documents to the advising bank
    5. The advising bank forwards them to the issuing bank and the importer

    Types: revocable (can be cancelled) and irrevocable (cannot be
    modified)
   E-banking
    Nowadays financial transactions (transferring money,
    checking the balance, selling shares, getting advice and
    financial analysis etc.) can be performed through the
    Internet.

    Advantages: flexibility, personalised offer, lower charges

    Disadvantages: no human contact, Internet access and
    computer skills are necessary,operations can be delayed
                 REVISION

   The financial institutions (definition, types)
   The two-tier banking system
   Central banks and their functions
   Financial services (definitions)
   Application for a loan
   Methods of payment (cash and cashless)
Thank you for your attention.

				
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