1 .

Banking and Financial Institutions (FIs): Introduction, Definitions,

Functions & Activities

Banks & Financial Institutions :

a. Commercial & Investment banks
b. Insurance companies
c. Thrifts Institutions – mutual savings banks, Credit Unions
d. Investment Companies – Mutual funds (stocks & bonds) money market mutual
funds (Treasury bills)
e. Pension Funds – private plus state and local
f. Finance companies – AT&T,GE capital, Advanta, Heller, CIT group
g. Securities, brokerages and dealers
h. Mortgage companies
i. Real state investment trust

Bank

 Bank is a financial institution that serves as a financial intermediary. The term "bank"
may refer to one of several related types of entities:

 Because of the important role depository institutions play in the financial system, the
banking industry is highly regulated, and government restrictions on financial
activities by banks have varied over time and by location.

 Present world is changing rapidly to face the challenge of competitive free market
economy Bank is a financial institution that provides services related to money. Since
bank operates in the service industry having a strong customer relationship is of
utmost importance. this position.

 The Banking sector in Bangladesh has gone through tremendous changes over the last
few decades as the sector became more competitive with the inclusion of many new
private banks, each coming up with its own unique scheme of services.

 The bank offers all kinds of Commercial Corporate and Personal Banking services
covering all segments of society within the framework of Banking Company Act and
rules and regulations laid down by our central bank. Diversification of products and
services include Corporate Banking, Retail Banking and Consumer Banking right
from industry to agriculture, and real state to software.

 Bank can be termed as iron cell of blood in a financial system of a country. Without
bank a financial system can’t survive. Form the very beginning of financial activity in
human civilization bank has a remarkable contribution as a whole.

 Banking-A pillar of economy- is guided by laws, rules, regulations and practices. The
prime objective of the banking industry as a whole is to collect deposits from the
public and to invest the same in the form of loans and advances to businesses. The
service necessary for financing of import, export, guarantees etc is also the function of
banks. In our country, like others,
  Banking companies act 1991 remain operative to control and monitor the function of
banks in coordination with the other laws. Since the banking functions are
commercial in nature, many laws from the negotiable instrument act to civil
procedure code are essential in the day-to-day operations of the banks.

 Generally a bank comprises of three departments- General Banking, Credit

Department, and Foreign Exchange Department. The department that is most
important to a bank and to the interest of the country is Foreign Exchange
Department.

Financial Institutions (FIs)

 Financial Institutions (FIs) e,.g. banks, credit unions, Insurance companies and
mutual funds perform the essential function of channeling funds from those with
surplus funds (supply of funds) to those with shortages of funds (users of fund).

 Although we might categorize FIs as Life or general Insurance Companies, banks

and finance companies and so on. , they face many common risks like credit risks,,
liquidity withdrawal or liquidity risk, etc.

 Because of these risks and special role that FI play in the financial system, FIs are
singled out for special regulatory attention. Both depository FIs (banks, savings
institutions,& credit unions) and non-depository FIs (Insurance companies, security
firms, investment banks, finance companies and mutual fund

 Current global bank capital requirements are referred to as Basel II.

 In some countries, such as Germany, banks have historically owned major stakes in
industrial companies, while in other countries, such as the United States, banks have
traditionally been prohibited from owning non-financial companies. In Japan, banks
are usually the nexus of a cross-share holding entity known as the "keiretsu". In
Iceland, banks followed international standards of regulation prior to the recent global
financial crisis that began in 2007.

 The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in
Siena, Italy, which has been operating continuously since 1472. Bank's main earning
is interest. Bank gives lower interest on deposit and gets higher interest on loan. With
this difference, bank makes money.1

Purpose of Banking
 Under English common law, a banker is defined as a person who carries on the business
of banking, which is specified as:

• conducting current accounts for his customers

• paying cheques drawn on him, and
• collecting cheques for his customers.
 2 .History of banking & Financial Institutions (FIs)

 1 Earliest forms of banking

o Mesopotamia, Egypt India, China, Greece & Rome

 2 Religious restrictions on interest

o Judaism, Christianity & Islam

 3 Medieval Europe

o Emergence of merchant banks, Crusades, Discounting of interest

Foreign exchange contracts, Italian bankers & Silver crisis

 4 Spread through Europe

o Expansion to Germany and Poland, Spain and the Ottoman Empire

Emergence of the Court Jew Netherlands & England

 5 Advances in the 17th and 18th century

o 5.1 Goldsmiths of London ,5.2 Debt as a new kind of money

5.3 Development of central banking,5.4 Removal of religious restrictions on earning interest

 6 19th century :6.1 Europe,6.2 United States & 6.3 Globalisation

7 20th century :7.1 1930s Great Depression ,7.2 World Bank and the development of payment technology & 7.3
1980s deregulation and globalisation

 8 21st century : 8.1 Late-2000s financial crisis

References
1. ^ a b Hoggson, N. F. (1926) Banking Through the Ages, New York, Dodd, Mead &
Company.

2. ^ Goldthwaite, R. A. (1995) Banks, Places and Entrepreneurs in Renaissance Florence,

Aldershot, Hampshire, Great Britain, Variorum

3. Financial Sector Institutional System in Bangladesh: Formal,

Semi-Formal & Informal as well as their Regulatory Institutions
• The economy of Bangladesh thoroughly depends on the banking industry that has
been playing a pivotal role in both short, medium and long-term financing needs.
• This banking industry includes Non-Banking Financial Institutions (NBFIs), Capital
Market Intermediaries, Insurance Companies and Micro-finance Institutions
• However, these financial institutions and market components are not equally
regulated at all levels of the governm
The financial system of Bangladesh is comprised of three broad fragmented sectors
1. Formal Sector
2. Semi-formal Sector
3. Informal Sector
Financial Regulators of Bangladesh
Central Bank- Bangladesh bank acts as the central bank of Bangladesh, was
established on December 16, 1971, through the enactment of Bangladesh bank order
1972. The general superintendence and direction of the affairs and business of BB has
been entrusted to a 9 members’ board of Directors which is headed by the governor.
Bangladesh bank has 45 departments and 10 branch offices.
Basel-III has been introduced in a phased manner starting from the January 2015, with
full implementation of capital ratios from the beginning of 2019.
Guidelines on Environmental and Climate Change Risk Management for banks and
FIs have been circulated. Policy guidelines on Green Banking also have been issued.
Banks have been asked to build up separate subsidiary for capital market operations,
Risk Management Unit for comprehensive and intensive risk management &
intensified to increase the participation of banks in Corporate Social Responsibility
(CSR).

Regulator of Insurance Development

For abolishing anomaly and fetching discipline in insurance industry, Insurance
Development and regulatory Authority (IDRA) was instituted on January 26, 2011, as
the regulator of the insurance industry being empowered by the IDRA act, 2010 by
replacing its predecessor, Chief Controller of Insurance.
IDRA has been established to make the insurance industry the premier financial
service provider in the country by structuring on an efficient corporate environment,
by securing embryonic aspiration of society and by penetrating deep into all segments
for high economic growth.
IDRA has taken number of appreciable steps to regularize this industry.
 Regulator of Capital Market Intermediaries
• Bangladesh Security and Exchange Commission (BSEC)- Bangladesh Securities and
Exchange Commission performs functions to regulate the capital market
intermediaries and issuance of capital and financial instrument by public limited
company. This 5-member commission was established under SEC Act, 1993.
• The mission of the BSEC is to protect the interest of securities, to develop and
maintain fair, transparent and efficient securities markets and to ensure proper
issuance of securities and compliance with securities law.

• After the massive crash of local bourses in 2010-2011, the executive body of SEC
was redesigned in full and some good results have come after that.

Regulator of Micro Finance Institutions

Microcredit Regulatory Authority (MRA)- To bring Non-government Micro finance
Institutions (NGO-MFIs) under a regulatory framework, GoB enacted the
“Microcredit Regulatory Authority Act, 2006”which came into effect in August 27,
2006.
The authority is empowered and responsible to implement the said act and bringing
the microcredit sector of the country under a full-fledged regulatory framework.
MRA was established in 2006 for bringing NGO-MFIs under supervision. For the pro
active role of MRA, this sector (MFI) is now in a good shape regarding the
accountability and regulation.

4. Challenges of Financial Institutional Budgetary Reform :

Medium Term Budgetary Framework (MTBF)

A plan for financing an enterprise, institution or government during a definite

period, which is prepared and submitted by a responsible executive to a
representative body (or other duly constituted agent) whose approval and
authorization are necessary before the plan may be executed."
• It is income & expenditure plan of Government over a period of one
fiscal year
• The Medium Term Budgetary Framework (MTBF) is a multi-year
approach to budgeting that provides a medium term framework of
government receipts and expenditure.
• The MTBF links the spending plans of government to its policy
objectives and requires a credible estimate of resources available for
expenditure.
• Multi-year approach covering a period of 3 years;
• Provides a framework for revenue receipts and both non-Development
and Development expenditure;
 • Includes estimated budget for the ensuring financial year and the
projections for two further years;
Existing Budgetary System
• Budget is formulated for only one year.
• Non-development and development budgets are prepared separately,
which results in duplication and overlapping in public expenditure
planning.
• The receipts and expenditure estimates are determined considering the
actual for the previous year and by adding a margin on top of that.
• The linkage between strategic objectives or the policy priorities and
resource allocation decisions is not explicit.
Detailed information on the expected results from the allocated fund are
not provided in the budget document nor is the output target fixed
explicitly
• Ministry of Finance and Ministry of Planning play the dominant role in
budget preparation. So, if fund is not allocated according to the need and
priority of the ministries, the implementation of relevant project or
programme may be hampered.
MTBF
• Consists of the estimates for three to five years
• Only the first year’s estimate is placed to Parliament for approval.
• Budget is prepared within a single ceiling, duplication and lack of
coordination can be avoided; and
• The demarcation between the non-development budget and development
budget is removed.
• The resource are allocated considering the priorities of programs or
projects necessary for achieving the strategic objectives of the
government
• Clearly indicated the expected output form the input for the relevant
ministry and its subordinate department/offices and provides an
opportunity to know about the output achieved.
• The line ministries and divisions are given enhanced authority and
responsibility for budget preparation or resource allocation.
Consequently, the relevant ministries have the opportunity to allocate and
utilise the fund according to their specific needs and priorities.

5. Role and Functions of CENTRAL BANK- Bangladesh Bank

Central Bank and its policies

Bangladesh Bank (BB), as the central bank, has legal authority to supervise and regulate all banks and
non-bank financial institutions. It performs the traditional central banking roles of note issuance and
of being the banker to the government and banks. Given some broad policy goals and objectives, it
formulates and implements monetary policy manages foreign exchange reserves and lays down
prudential regulations and conduct monitoring thereof as they apply to the entire banking system. Its
prudential regulations include, among others: minimum capital requirements, limits on loan
concentration and insider borrowing and guidelines for asset classification and income recognition..

Monetary Policy
Monetary policy is a set of rules that aims at regulating the supply of money in accordance with
predetermined goals or objectives. Monetary policy plays a very dominant role in altering the
economic activity and the price level in a country. So, it should be very carefully formulated and
implemented in achieving the goals and objectives as outlined in the Bangladesh Bank Order, 1972
below:
• Price stability both internal & external
• Sustainable growth & development
• High employment
• Economic and efficient use of resources
• Stability of financial & payment system

Reserve Management Strategy

Bangladesh Bank (BB) is empowered by section 7A of Bangladesh Bank Order, 1972 (President’s
Order No. 127 of 1972) to hold and manage the official foreign exchange reserve of Bangladesh. It
maintains its foreign exchange reserve in different currencies to minimize the risk emerging from
widespread fluctuation in exchange rate of major currencies and very irregular movement in interest
rates in the global money market. BB has established account arrangements with different Central
Banks. Funds accumulated in these accounts are invested in Treasury bills and other government
papers in the respective currencies. It also makes investment in the form of short term deposits with
different high rated and reputed commercial banks and purchase of high rated
sovereign/supranational/corporate bonds..

Exchange Rate Policy

Towards liberalization of foreign exchange transactions, a number of measures were adopted since
1990s. Bangladeshi currency, the taka, was declared convertible on current account transactions (as on
24 March 1994), in terms of Article VIII of IMF Article of Agreement (1994). As Taka is not
convertible in capital account, resident owned capital is not freely transferable abroad. Bangladesh
adopted Floating Exchange Rate regime since 31 May 2003. Under the regime, BB does not interfere
in the determination of exchange rate, but operates the monetary policy prudently for minimizing
extreme swings in exchange rate to avoid adverse repercussion on the domestic economy.

Interest Rate Policy

Under the Financial sector reform program, banks are free to charge/fix their deposit (Bank /Financial
Institutes) and Lending (Bank /Financial Institutes) rates other than Export Credit. . With progressive
deregulation of interest rates, banks have been advised to announce the mid-rate of the limit (if any)
for different sectors and the banks may change interest 1.5% more or less than the announced mid-rate
on the basis of the comparative credit risk. Recently Banks have been advised to upload their deposit
and lending interest rate in their respective website.

Capital Adequacy of the Banks

With a view to strengthening the capital base of banks and making them prepare for the
implementation of Basel-II Accord, banks are required to maintain Capital to Risk-Weighted Assets
ratio 10% at the minimum with core capital not less than 5% effective from December 31, 2007.
Revaluation reserves of held to maturity (HTM) securities (up to 50% of the revaluation reserves) has
been added to the components of supplementary capital. Besides, 'Hedging the price risk of
commodity transactions' has been included in Short-term self liquidating trade related contingencies.

Loan Classification and Provisioning

In order to strengthen credit discipline and bring classification and provisioning regulation in line with
international standard, Bangladesh Bank issued a master circular on loan classification and
provisioning through BRPD circular no 5 dated June 5, 2006. The revised policy covers an
independent assessment of each loan on the basis of objective criteria and qualitative factors which is
appended below:

Any Continuous Loan/Demand Loan if not repaid/renewed within the fixed expiry date for
repayment will be treated as past due/overdue from the following day of the expiry date. A
Continuous Loan/Demand loan/Term Loan which will remain overdue for a period of 90 days or
more, will be put into the "Special Mention Account(SMA)". Interest accrued on "Special Mention
Account (SMA)" will be credited to Interest Suspense Account, instead of crediting the same to
Income Account.

A Continuous Loan/Demand loan is classified as 'Sub-standard' if it is past due/over due for 6

months or beyond but less than 9 months, classified as `Doubtful' if it is past due/over due for 9
months or beyond but less than 12 months and classified as `Bad/Loss' if it is past
due/over due for 12 months or beyond.

If any installment(s) or part of installment(s) of a Fixed Term Loan is not repaid within the due date,
the amount of unpaid installment(s) will be termed as `defaulted installment'. In case of Fixed Term
Loans, which are repayable within maximum five years of time- If the amount of 'defaulted
installment' is equal to or more than the amount of installment(s) due within 6 (six) months, the
entire loan will be classified as "Sub-standard", if the amount is equal to or more than the amount of
installment(s) due within 12 (twelve) months, the entire loan will be classified as"Doubtful" and if
the amount is equal to or more than the amount ofinstallment(s) due within 18 (eighteen) months, the
entire loan will be classified as "Bad/Loss".
In case of Fixed Term Loans, which are repayable in more than five years of time and if he amount
of 'defaulted installment' is equal to or more than the amount of installment(s) due
within 12 (twelve) months, the entire loan will be classified as"Sub-standard". If the amount is due
within 18 (eighteen) months, the entire loan will be classified as "Doubtful" and if the amount is due
within 24 (twenty four) months, the entire loan will be classified as "Bad/Loss".

The Short-term Agricultural and Micro-Credit will be considered irregular if not repaid within the
due date as stipulated in the loan agreement. If the said irregular status continues, the credit will be
classified as 'Substandard ' after a period of 12 months, as 'Doubtful' after a period of 36 months and
as 'Bad/Loss' after a period of 60 months from the stipulated due date as per loan agreement.

Deposit and Insurance:

The deposit insurance scheme (DIS) was introduced in Bangladesh in August 1984 to act as a safety
net for the depositors aiming at minimizing the risks of loss of depositors' fund with banks in which
all the commercial banks including foreign banks and the specialized banks operating in Bangladesh
are the member of this scheme by compulsion as provided under Article of Bank Deposit Insurance
Act 2000.

A Deposit Insurance Trust Fund (DITF) has also been created for providing limited protection (not
exceeding Taka 0.01 million) to a small depositor in case of winding up of any bank. . According to
new instruction regarding premium rates, problem banks are required to pay 0.09 percent and private
banks other than the problem banks and state owned commercial banks are required to pay 0.07
percent where the percent coverage of the deposits is taka one hundred thousand per depositor per
bank. With this end in view, BB has already advised the banks for bringing DIS into the notice of the
public through displaying the same in their display board.

Foreign Exchange System

On March 24, 1994 Bangladesh Taka (domestic currency) was declared convertible for current
transactions in terms of Article VIII of the IMF Articles of Agreement. Consequent to this, current
external settlements for trade in goods and services and for amortization payments on foreign
borrowings can be made through banks authorized to deal in foreign exchange, without prior central
bank authorization. However, because resident owned capital is not freely transferable abroad (Taka is
not yet convertible on capital account), Investment abroad of resident-owned capital is subject to prior
Bangladesh Bank approval, which is allowed only sparingly.

6. Characteristicg & Nature of Different Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and small
businesses; business banking, providing services to mid-market business; corporate banking,
directed at large business entities; private banking, providing wealth management services to high
net worth individuals and families; and investment banking, relating to activities on the financial
markets. Most banks are profit-making, private enterprises. However, some are owned by
government, or are non-profit organizations.

Types of retail banks

Commercial banking
the term used for a normal bank to distinguish it from an investment bank. After the Great Depression,
the U.S. Congress required that banks only engage in banking activities, whereas investment banks
were limited to capital market activities. Commercial bank accepts deposits and pools those
funds to provide credit, either directly by lending, or indirectly by investing through the
capital markets. Community banks: locally operated financial institutions that empower employees
to make local decisions to serve their customers and the partners.
• Community development banks: regulated banks that provide financial services and credit to
under-served markets or populations.
• Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more
favorable than for-profit banks. Typically, membership is restricted to employees of a particular
company, residents of a defined neighborhood, members of a certain labor union or religious
organizations, and their immediate families.
• Postal savings banks: savings banks associated with national postal systems.
• Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore
banks are essentially private banks.
• Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th
century. Their original objective was to provide easily accessible savings products to all strata of the
population. In some countries, savings banks were created on public initiative; in others, socially
committed individuals created foundations to put in place the necessary infrastructure. Nowadays,
European savings banks have kept their focus on retail banking: payments, savings products, credits
and insurances for individuals or small and medium-sized enterprises.. Savings bank (also known
as a "building society" in the United Kingdom) is similar to a savings and loan association
(S&L). They can either be stockholder owned or mutually owned. The asset structure of
savings banks and savings and loan associations is similar, with residential mortgage loans
providing the principal assets of the institution's portfolio.
• Building societies and Lenders banks: institutions that conduct retail banking.
• Ethical banks: banks that prioritize the transparency of all operations and make only what they
consider to be socially-responsible investments.
• A Direct of Internet: banking operation without any physical bank branches, conceived and
implemented wholly with networked computers.

Types of investment banks

• Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own
accounts, make markets, and advise corporations on capital market activities such as mergers and
acquisitions.
• Merchant banks were traditionally banks which engaged in trade finance. The modern definition,
however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike
venture capital firms, they tend not to invest in new companies.

Both combined
Universal banks, more commonly known as financial services companies, engage in several of these
activities. These big banks are much diversified groups that, among other services, also distribute
insurance— hence the term bancassurance, a portmanteau word combining "banque or bank" and
"assurance", signifying that both banking and insurance are provided by the same corporate entity.

Other types of banks

• Central bank circulates money on behalf of a government and acts as its monetary
authority by implementing monetary policy, which regulates the money supply. Central banks
are normally government-owned and charged with quasi-regulatory responsibilities, such as
supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity
to the banking system and act as the lender of last resort in event of a crisis.
• Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several
well-established principles based on Islamic canons. All banking activities must avoid interest, a
concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing
facilities that it extends to customers.

Investment banking
An investment bank is a financial institution that assists individuals, corporations and
governments in raising capital by underwriting and/or acting as the client's agent in the
issuance of securities. An investment bank may also assist companies involved in mergers
and acquisitions, and provide ancillary services such as market making, trading of
derivatives, fixed income instruments, foreign exchange, commodities, and equity securities.
There are two main lines of business in investment banking. Trading securities for cash or for
other securities (i.e., facilitating transactions, market-making), or the promotion of securities
(i.e., underwriting, research, etc.) is the "sell side", while dealing with pension funds, mutual
funds, hedge funds, and the investing public (who consume the products and services of the
sell-side in order to maximize their return on investment) constitutes the "buy side". Many
firms have buy and sell side components.
An investment bank can also be split into private and public functions with a Chinese wall
which separates the two to prevent information from crossing. The private areas of the bank
deal with private insider information that may not be publicly disclosed, while the public
areas such as stock analysis deal with public information.

Organizational structure
Main activities
Investment banking is split into the so-called front office, middle office, and back office.
While large service investment banks offer all of the lines of businesses, both sell side and
buy side, smaller ones sell side investment firms such as boutique investment banks and
small broker-dealers focus on investment banking and sales/trading/research, respectively.
Investment banks offer services to both corporations issuing securities and investors buying
securities. For corporations, investment bankers offer information on when and how to place
their securities on the open market, an activity very important to an investment bank's
reputation. Therefore, investment bankers play a very important role in issuing new security
offerings.
Core investment banking activities
Front office
 Investment banking (corporate finance) is the traditional aspect of investment banks
which also involves helping customers raise funds in capital markets and giving advice
on mergers and acquisitions (M&A). This may involve subscribing investors to a security
issuance, coordinating with bidders, or negotiating with a merger target. Another term for
the investment banking division is corporate finance, and its advisory group is often
termed mergers and acquisitions. The investment banking division (IBD) is generally
divided into industry coverage and product coverage groups.
 Sales and trading: On behalf of the bank and its clients, a large investment bank's
primary function is buying and selling products. In market making, traders will buy and
sell financial products with the goal of making money on each trade. Sales is the term for
the investment bank's sales force, whose primary job is to call on institutional and high-
net-worth investors to suggest trading ideas (on a caveat emptor basis) and take orders..
Banks also undertake risk through proprietary trading, performed by a special set of
traders who do not interface with clients and through "principal risk"—risk undertaken by
a trader after he buys or sells a product to a client and does not hedge his total exposure.
 Research is the division which reviews companies and writes reports about their
prospects, often with "buy" or "sell" ratings. Other businesses that an investment bank
may be involved in
 Global transaction banking is the division which provides cash management,
custody services, lending, and securities brokerage services to institutions. Prime
brokerage with hedge funds has been an especially profitable business, as well as risky,
as seen in the "run on the bank" with Bear Stearns in 2008.
 Investment management is the professional management of various securities
(shares, bonds, etc.) and other assets (e.g., real estate), to meet specified investment goals
for the benefit of investors. Investors may be institutions (insurance companies, pension
funds, corporations etc.) or private investors (both directly via investment contracts and
more commonly via collective investment schemes e.g., mutual funds). The investment
management division of an investment bank is generally divided into separate groups,
often known as Private Wealth Management and Private Client Services.
 Merchant banking can be called "very personal banking"; merchant banks offer
capital in exchange for share ownership rather than loans, and offer advice on
management and strategy. Merchant banking is also a name used to describe the private
equity side of a firm.
.
Middle office
 Risk management involves analyzing the market and credit risk that traders are
taking onto the balance sheet in conducting their daily trades, and setting limits on the
amount of capital that they are able to trade in order to prevent "bad" trades having a
detrimental effect on a desk overall. Another key Middle Office role is to ensure that the
economic risks are captured accurately (as per agreement of commercial terms with the
 counterparty), correctly (as per standardized booking models in the most appropriate
systems) and on time (typically within 30 minutes of trade execution. Corporate
treasury is responsible for an investment bank's funding, capital structure management,
and liquidity risk monitoring.
 Financial control tracks and analyzes the capital flows of the firm, the Finance
division is the principal adviser to senior management on essential areas such as
controlling the firm's global risk exposure and the profitability and structure of the firm's
various businesses via dedicated trading desk product control teams. In the United States
and United Kingdom, a Financial Controller is a senior position, often reporting to the
Chief Financial Officer.
 Corporate strategy, along with risk, treasury, and controllers, also often falls under
the finance division.
 Compliance areas are responsible for an investment bank's daily operations
compliance with government regulations and internal regulations. Often also considered a
back-office division.
Back office
 Operations involves data-checking trades that have been conducted, ensuring that
they are not erroneous, and transacting the required transfers. While some believe that
operations provides the greatest job security and the bleakest career prospects of any
division within an investment bank, many banks have outsourced operations. It is,
however, a critical part of the bank.
 Technology refers to the information technology department. Every major investment
bank has considerable amounts of in-house software, created by the technology team,
who are also responsible for technical support.

 References
 Fleuriet Michel Investment Banking Explained: An Insider's Guide to the Industry Mc Graw-Hill New
York NY 2008 ISBN 978-0-07-149733-6

 Rosenbaum, Joshua; Joshua Pearl (2009). Investment Banking: Valuation, Leveraged Buyouts, and
Mergers & Acquisitions. Hoboken, NJ: John Wiley & Sons. ISBN 0-470-44220-4.

7. Role of Commercial Banks

Commercial banks engage in the following activities:

• processing of payments by way of telegraphic transfer, EFTPOS, internet
banking, or other means
• issuing bank drafts and bank cheques
• accepting money on term deposit
• lending money by overdraft, installment loan, or other means
• providing documentary and standby letter of credit, guarantees, performance
bonds, securities underwriting commitments and other forms of off balance sheet
exposures
• safekeeping of documents and other items in safe deposit boxes
 • distribution or brokerage, with or without advice, of insurance, unit trusts and
similar financial products as a “financial supermarket”
• cash management and treasury
• merchant banking and private equity financing

• Types of loans granted by commercial banks=Secured loan

A secured loan is a loan in which the borrower pledges some asset (e.g., a car or
property) as collateral (i.e., security) for the loan. A secured loan is a loan in which the
borrower pledges some asset (e.g. a car or property) as collateral for the loan, which
then becomes a secured debt owed to the creditor who gives the loan. The debt is thus
secured against the collateral — in the event that the borrower defaults, the creditor
takes possession of the asset used as collateral and may sell it to regain some or all of the
amount originally lent to the borrower, for example, foreclosure of a home.

Unsecured loan
• Unsecured loans are monetary loans that are not secured against the borrowers
assets (i.e., no collateral is involved). These may be available from financial
institutions under many different guises or marketing packages:

bank overdrafts
• An overdraft occurs when money is withdrawn from a bank account and the
available balance goes below zero. In this situation the account is said to be
"overdrawn". If there is a prior agreement with the account provider for an
overdraft, and the amount overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate. If the negative balance
exceeds the agreed terms, then additional fees may be charged and higher
interest rates may apply.
Mortgage loan
• A mortgage loan is a very common type of debt instrument, used to purchase
real estate. Under this arrangement, the money is used to purchase the property.
Commercial banks, however, are given security - a lien on the title to the house -
until the mortgage is paid off in full. If the borrower defaults on the loan, the
bank would have the legal right to repossess the house and sell it, to recover sums
owing to it.

However, due to changes in banking laws and policies, commercial banks are
increasingly active in home financing. Changes in banking laws now allow commercial
banks to make home mortgage loans on a more liberal basis than ever before

• credit card debt

• credit facilities or lines of credit
• personal loans

SERVICES (Accounts, FDR, PDS, Deposit Scheme

• Current Account
• Savings Bank Account
• Some Banks render special services to the customers attracting other banks.
• 2.1 DEFINITION OF FOREIGN EXCHANGE
Foreign Exchange is a process which is converted one national currency into
another and transferred money from one country to another countries.
 According to Mr. H. E. Evitt. Foreign Exchange is that section of economic
science which deals with the means and method by which right to wealth in one
country's currency are converted into rights to wealth in terms of another country's
currency. It involved the investigation of the method by which the currency of one
country is exchanged for that of another, the causes which rented such exchange
necessary the forms which exchange may take and the ratio or equivalent values at
which such exchanges are effected.

2.2 FUNCTION OF FOREIGN EXCHANGE

ix) Convertibility.
x) Exchange position.
xi) Intervention money.
xii) Foreign exchange transaction.
xiii) Foreign exchange trading.
xiv) Export and import letter of credit.
xv) Non-commercial letter of trade.
xvi) Financing of foreign trade.
xvii) Nature and function of foreign exchange market.
xviii) Rules and Regulation used in foreign trade.
xix) Exchange Arithmetic.