CQIB Chapter 1 – Business of Banking: Financial Institutions, Services, and Banking Operations
Study Guide
financial intermediation - correct answer ✔✔The process of pooling funds from savers and
using these to provide loans to borrowers. The bank acts as a go between or intermediary for
those who have extra money and those who want to borrow.
Role of Banks - correct answer ✔✔Acts as a financial intermediary between savers and
borrowers, which results in efficient use of pooled resources.
Facilitates the creation of money by expanding the supply of money through deposit and loan
transactions.
Creates financial products and services that benefits its customers.
Develops mechanisms for transferring money and making payments.
Contributes to the development of the economy
Investment Banking: what are Debt Capital Markets? - correct answer ✔✔Large Company or
Government wants to raise capital by issuing bonds
An investment bank would be involved in planning the bond issuance, working with the issuer
to manage the documentation required to issue the bonds, and help sell the bonds.
The investment bank would buy the securities at one price and then add on a markup in the
sale price and thereby generate a profit that compensates for the risk they take on. This
difference is the underwriting spread. A lead bank will normally work with a group of
investment banks, called a syndicate, to underwrite an issue so that the risk is spread among
others.
,Investment Banking: A group of investment banks is called? - correct answer ✔✔Syndicate - A
lead bank will normally work with a group of investment banks, called a syndicate, to
underwrite an issue so that the risk is spread among others.
Investment Banking: What is underwritten spread? - correct answer ✔✔The investment bank
would buy the securities at one price and then add on a mark-up in the sale price and thereby
generate a profit that compensates for the risk they take on. This difference is the underwriting
spread.
Investment Banking: What is Equity capital markets? - correct answer ✔✔Where a company
needs more money to grow and decides to raise the funds by undertaking an initial public
offering (IPO). Whereby it sells its shares to the public and a wider pool of
investors for the first time. The investment bank will put together a prospectus explaining the
terms of the offering and the risks it carries, managing the issuance process and helping the
price of the offering.
Investment Banking: Private placements - correct answer ✔✔Where customers plan an offering
of bonds with an institutional investor such as an insurance company or a retirement fund.
Often this can be a fast track option due to lower regulatory requirements.
Investment Banking: Mergers and acquisitions - correct answer ✔✔Where a company is looking
to buy another company, investment banks offer advice on how the company should proceed
with the acquisition, including the pricing of the offer.
Investment banks need to establish information barriers within the organizations to prevent
exchanges or communication that could lead to conflict of interest.
Accepting Deposits: Banks source their funds largely from deposits from the public? What are
the 3 main types of public deposits - correct answer ✔✔Savings deposits (from salary and wage
earners)
, Fixed term deposits (lump sum deposited for a
specific period)
Current deposits (business accounts)
Granting Loans: List the types of bank loans and advances banks grant. - correct answer
✔✔Overdraft - An overdraft is a defined credit limit attached to a bank account that can be
drawn against. Interest is charged on the overdrawn balance.
Credit card - Credit cards allow the purchase of goods and services within a certain limit,
effectively borrowing money, and paying it back later, usually monthly or bi monthly
instalments.
Short to medium term loans - Short term loans where principal and interest repayments are
made over a shorter time period of say, 12 months to 5 years (e.g., for purchase of a car).
Long term loans - Long term loans where principal and interest repayments are made over a
longer period of say, 30 years (e.g., for purchase of a home)
Bills of exchange and promissory notes - Bills of exchange and promissory notes are specialised
instruments. being an unconditional order in writing between parties, where the bank
purchases the bill amount from the borrower, deducting charges. On maturity the bill 1s
presented to the borrower and the full amount is collected.
Equipment leasing and hire purchase - Equipment leasing and hire purchase are common forms
of borrowing for the financing of plant, machinery and vehicles by individuals and businesses.
Taxation benefits are often linked to these forms of debt, making them popular funding options.
Study Guide
financial intermediation - correct answer ✔✔The process of pooling funds from savers and
using these to provide loans to borrowers. The bank acts as a go between or intermediary for
those who have extra money and those who want to borrow.
Role of Banks - correct answer ✔✔Acts as a financial intermediary between savers and
borrowers, which results in efficient use of pooled resources.
Facilitates the creation of money by expanding the supply of money through deposit and loan
transactions.
Creates financial products and services that benefits its customers.
Develops mechanisms for transferring money and making payments.
Contributes to the development of the economy
Investment Banking: what are Debt Capital Markets? - correct answer ✔✔Large Company or
Government wants to raise capital by issuing bonds
An investment bank would be involved in planning the bond issuance, working with the issuer
to manage the documentation required to issue the bonds, and help sell the bonds.
The investment bank would buy the securities at one price and then add on a markup in the
sale price and thereby generate a profit that compensates for the risk they take on. This
difference is the underwriting spread. A lead bank will normally work with a group of
investment banks, called a syndicate, to underwrite an issue so that the risk is spread among
others.
,Investment Banking: A group of investment banks is called? - correct answer ✔✔Syndicate - A
lead bank will normally work with a group of investment banks, called a syndicate, to
underwrite an issue so that the risk is spread among others.
Investment Banking: What is underwritten spread? - correct answer ✔✔The investment bank
would buy the securities at one price and then add on a mark-up in the sale price and thereby
generate a profit that compensates for the risk they take on. This difference is the underwriting
spread.
Investment Banking: What is Equity capital markets? - correct answer ✔✔Where a company
needs more money to grow and decides to raise the funds by undertaking an initial public
offering (IPO). Whereby it sells its shares to the public and a wider pool of
investors for the first time. The investment bank will put together a prospectus explaining the
terms of the offering and the risks it carries, managing the issuance process and helping the
price of the offering.
Investment Banking: Private placements - correct answer ✔✔Where customers plan an offering
of bonds with an institutional investor such as an insurance company or a retirement fund.
Often this can be a fast track option due to lower regulatory requirements.
Investment Banking: Mergers and acquisitions - correct answer ✔✔Where a company is looking
to buy another company, investment banks offer advice on how the company should proceed
with the acquisition, including the pricing of the offer.
Investment banks need to establish information barriers within the organizations to prevent
exchanges or communication that could lead to conflict of interest.
Accepting Deposits: Banks source their funds largely from deposits from the public? What are
the 3 main types of public deposits - correct answer ✔✔Savings deposits (from salary and wage
earners)
, Fixed term deposits (lump sum deposited for a
specific period)
Current deposits (business accounts)
Granting Loans: List the types of bank loans and advances banks grant. - correct answer
✔✔Overdraft - An overdraft is a defined credit limit attached to a bank account that can be
drawn against. Interest is charged on the overdrawn balance.
Credit card - Credit cards allow the purchase of goods and services within a certain limit,
effectively borrowing money, and paying it back later, usually monthly or bi monthly
instalments.
Short to medium term loans - Short term loans where principal and interest repayments are
made over a shorter time period of say, 12 months to 5 years (e.g., for purchase of a car).
Long term loans - Long term loans where principal and interest repayments are made over a
longer period of say, 30 years (e.g., for purchase of a home)
Bills of exchange and promissory notes - Bills of exchange and promissory notes are specialised
instruments. being an unconditional order in writing between parties, where the bank
purchases the bill amount from the borrower, deducting charges. On maturity the bill 1s
presented to the borrower and the full amount is collected.
Equipment leasing and hire purchase - Equipment leasing and hire purchase are common forms
of borrowing for the financing of plant, machinery and vehicles by individuals and businesses.
Taxation benefits are often linked to these forms of debt, making them popular funding options.
