2015-10-14
460
Find the answers to the following questions in the text:
1. May the bank trade on its own account?
2. What does a bank do to achieve the best profit?
3. How is funding for a bank achieved?
4. What does careful management of the maturity of funds lent and funds borrowed ensure?
5. What must the great care be taken for when loan decisions are made?
A bank may trade in many instruments and on its own account or on the instructions of its customers. When trading for its own account the bank will act on its own view of the market whether it is trading in currency, placing deposits or trading in other instruments. For example, if short-term USD interest rates are very good but long-term £ rates are good, deposits will be placed accordingly to achieve the best profit.
The investment of the bank's capital is usually the responsibility of the Treasury Department.
Borrowing and lending are complementary activities for a bank, loans to a bank customer must be funded. Funding for a bank can be achieved in several different ways, for example, through money market deposits, customer deposits. For this reason it is clear that great care must be taken when loan decisions are made - to ensure that the money is lent wisely and repaid when due. Careful management of the maturity of funds lent and funds borrowed ensures that the bank can meet all necessary obligations when due, that is, the bank is liquid. Usually a Treasury Analysis or Risk Management Department is responsible for monitoring liquidity and cashflow.
