Understanding Bank Accounts, Loans, and Financial Operations

Posted on Jan 29, 2025 in Economy

Liabilities

Liabilities are operations by means of which customers make funding available to banks and savings institutions. These are known as bank accounts. Deposits taken in any financial institution are:

  1. Demand Deposits (Checking Accounts): Against delivery, the deposited entity is committed to the custody of the same and agrees to make charges and payments on behalf of the depositor. Some banks agree to pay interest at the time of formalization.
  2. Savings Accounts: These are similar to checking accounts but differ in that the disposition of funds is done through a bankbook or passbook, while checking accounts use checks.
  3. Term Deposits and Taxation: The incumbent deposits a sum of money but cannot dispose of it until the agreed-upon expiry period established by both parties. In exchange for this immobility, the entity repays the deposit with a higher interest rate.

Classes of Current Accounts

  • Single: The owner is a single person or entity.
  • Collective: The incumbent is more than one person.
    • Joint Accounts: The disposition of funds must be agreed upon by all account holders. The entity will only honor orders signed by all owners. The advantage of such accounts, also called pooled funds where the arrangement has to be agreed upon, is the great security provided. The inconvenience is that they are very slow.
    • Indistinct Accounts: The disposition of funds can be done individually by any of the owners of the account.

Loan Guarantees

  • Protection: Requires the delivery of specific property to secure the operation.
  • Security Interests: Establishing a security right in an asset or a specific property.
    • Mortgage: When goods are incorporated as real estate as a guarantee of compliance.
    • Collateral: Means any other property that establishes the security right. These can be:
      • With displacement: It is required to deposit the property or goods involved in a particular place.
      • Without displacement: The property or goods are held by the borrower.

Credit Scoring

A risk assessment system used by financial institutions to approve or deny loan applications with the speed required by the existing volume of movements in banking today. It involves granting a series of scores to different characteristics of the applicant, such as profession, age, etc. All this allows for obtaining a score, which helps in decision-making.

Payment of Bills/Management of Effects on Cost

Individuals use financial institutions for collection management purposes. Using this service, the customer, in exchange for a pertinent commission, delegates the management of the collection to the entity, which is responsible for conducting all legal proceedings upon expiration. The resulting liquid is deposited into the customer’s account. If the effect is returned for non-compliance, the bank charges a management fee to cover the expenses incurred.

Currency

Documents issued in foreign currency include checks, promissory notes, bills, transfers, deposits, payments, or recoveries made in any currency.

Functions of Financial Products

  1. Used for hedging.
  2. Provide the potential to invest.
  3. Provide the opportunity to speculate.

Features of Financial Products

  1. The contract is not for the purchase of a good but of an asset, which is called the underlying asset, at a later time.
  2. The purchase price of the contract depends on the price of another asset which underpins the operation.