Investments and Banking 7 (PowerPoint) by fanzhongqing

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									      Investments and Banking
                #7

            Banking, deposits




2004/2005      Investments and Banking   1
                        Banks
• Two-tier system
• NBH (www.mnb.hu) /EU:ECB, USA: Fed/
• main goals
  Inflation targeting +
    – keeping accounts (Banks, KESZ, OBA, BEVA)
    – regulating monetary system (to ensure stability)
    – regulating money D/S, interest rates
    – coordinating money transfers
    – managing currency reserves
    – preparing statistics (banking sector, current account)
    No more: managing gvt. debt
2004/2005              Investments and Banking                 2
 NBH tools, consumer protection
• NBH’s main tools
    – base rate
    – O/N deposit/loan (or repo)
    – reserve requirements
    – NBH-bonds
    – open market transactions (FX, gvt. sec.)
• NBH, HFSA (PSZAF),
• OBA (1M 100%, 1-6M 90%)
2004/2005           Investments and Banking      3
            Monetary system
                                Financial
                               institutions


               Credit                                Financial
            institutions                            enterprises



   Banks          Special credit                  Cooperative
                   institutions                credit institutions
              - mortgage credit institutions   - Savings cooperatives
               - home saving cooperatives       - Credit cooperatives


2004/2005            Investments and Banking                        4
     %                       Interbank rates
14


13


12


11


10
            O/N
            1M
 9
            O/N deposit
            base rate (2W)
 8          O/N loan


7
Jan-04       Apr-04            Jul-04            Oct-04   Jan-05
2004/2005                    Investments and Banking               5
                            HUF/EUR
330
320
310
300
290
280
270
260
250
240
230
                             Jul-04




                                                  Oct-04
      Jan-04




                                                           Jan-05
               Apr-04




2004/2005               Investments and Banking                     6
                      Balance sheet
             Assets                                Liabilities

- cash
                                         - deposits (clients’)
- NBH deposits
                                         - interbank/NBH loans
- interbank deposits
                                         - bonds
- loans
                                         - reserves
- leasing
                                         - subordinated debt
- securities
                                         - own capital
- other (eg. building)
 2004/2005               Investments and Banking                 7
           Consumer loans
• Hungarian consumers are not price-
  sensitive, they only look their monthly
  budget
• Deceiving advertisements
  – 0% (usually if the debt is repaid in 3 months)
  – only 1% interest (frequently means monthly
    interest and it is without costs)
• THM is to compare offers
   (annual yield with all costs included,
   predefined calculation method by gvt.
   decree)
2004/2005         Investments and Banking            8
             Compounding
• if t<1 year then              You open am account for 6 month.
                                Your open balance is HUF 100,000.
  FV=PV(1+rt)                   The annual interest rate is 12%. How
                                much money will you have at
  linear interest               maturity?
  calculation                   PV=100,000 r=12% t=0.5 years
  no re-investments of          FV=100,000*(1+0.12*0.5)=106.000
  interest
                                You open am account for 2 years.
                                (Interests credited annually.) Your
• if t>1 year then              open balance is HUF 100,000. The
  FV=PV(1+r)t                   annual interest rate is 12%. How
                                much money will you have at
  compound interest             maturity?
  interest earnings are         FV=100,000*(1+0.12)2=125,440
                                (without compound interest:
  reinvested                    FV=100,000*(1+0.12*2)=124,000
2004/2005          Investments and Banking                             9
            Compounding periods
FV=PV(1+k/m)t
k – annual nominal int. rate, m – comp. period
You are opening a bank account, with an initial
investment of HUF 100,000. Annual nominal
interest rate is 12%. Interest amounts credited
monthly. How much money will be there in 1 year?
1. Annual nominal interest rate: k=12%
2. Monthly interest rate: i=k/12=1%
3. FV=100,000*(1+0.01)12=112,683


2004/2005             Investments and Banking    10
            Time, rate, compounding
              0     1     2      3       4     5     6     7     8     9    10    11    12    13    14    15    16    17    18    19     20
6% linear   100   106   112    118     124   130   136   142   148   154   160   166   172   178   184   190   196   202   208   214    220
   comp     100   106   112    119     126   134   142   150   159   169   179   190   201   213   226   240   254   269   285   303    321
10% lin.    100   110   124    136     148   160   172   184   196   208   220   232   244   256   268   280   292   304   316   328    340
    comp    100   112   125    140     157   176   197   221   248   277   311   348   390   436   489   547   613   687   769   861    965


                                                 Linear vs. compounding interest
  1000
   900
   800                      6% linear
   700
                               comp
   600
   500                      12% lin.
   400                          comp
   300
   200
   100
     0
            0     1     2      3       4     5     6     7     8     9     10 11       12    13 14       15    16 17       18    19 20



2004/2005                                           Investments and Banking                                                        11
              Sight deposits
• Can be debited any time (liquidity)
• No (or little) interest is paid
• Debit card is usual
  (sometimes “free of charge”)
• Costs are more important when selecting
    – monthly/annual fee for the account
    – annual fee for the card
    – withdraw, transfer and other transaction costs
2004/2005           Investments and Banking        12
            Fixed term deposits
• Higher interest
• If you take your money out before the given
  period (most of) the interests will be lost
• Flexible time periods (1w, 2w, 1m, 3m, 6m, 1y)
• Interest is modified by the invested amount (eg.
  up to HUF 100,000 6%, 100,000-500,000 6.5%,
  over 500,000 7%)
• Usually there is a period-amount combination for
  marketing purpose

2004/2005         Investments and Banking       13
            FX accounts
• EUR, USD, GBP, CHF, JPY rates are
  really low these days
• FX-risk is huge
• Currently not an alternative to HUF
  investments




2004/2005      Investments and Banking   14

								
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