Page 66 - DMGT303_BANKING_AND_INSURANCE

Unit 3: Concept of Retail Banking

Unsecured Loan Notes

Unsecured Loans are monetary loans that are not secured against the borrower’s 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An overdraft occurs when money is withdrawn from a bank account and the available balance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 POSITIVE
balance exceeds the agreed terms, then additional fees may be charged and higher interest rates
may apply.
corporate bonds
credit card debt

credit facilities or lines of credit
personal loans

What makes a bank limited liability company

A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise
money in order to expand its business. The term is usually applied to longer-term debt
instruments, generally with a maturity date falling at least a year after their issue date. (The
term “commercial paper” is sometimes used for instruments with a shorter maturity.) Sometimes,
the term “corporate bonds” is used to include all bonds except those issued by governments in
their own currencies. Strictly speaking, however, it only applies to those issued by corporations.
The bonds of local authorities and supranational organizations do not fit in either category.
[clarification needed] Corporate bonds are often listed on major exchanges (bonds there are
called “listed” bonds) and ECNs like Bonds.com and Market Axes, and the coupon (i.e. interest
payment) is usually taxable. Sometimes this coupon can be zero with a high redemption value.
However, despite being listed on exchanges, the vast majority of trading volume in corporate
bonds in most developed markets takes place in decentralized, dealer-based, over-the-counter
markets. Some corporate bonds have an embedded call option that allows the issuer to redeem
the debt before its maturity date. Other bonds, known as convertible bonds, allow investors to
convert the bond into equity. Corporate Credit spreads may alternatively be earned in exchange
for default risk through the mechanism of Credit Default Swaps which give an unfunded synthetic
exposure to similar risks on the same ‘Reference Entities’. However, owing to quite volatile
CDS ‘basis’ the spreads on CDS and the credit spreads on corporate bonds can be significantly
different.

3.10 Wholesale Banking

Wholesale banking is the provision of services by banks to the likes of Mortgage Brokers, large
corporate clients, mid-sized companies, real estate developers and investors, international trade
finance businesses, institutional customers (such as pension funds and government entities/
agencies), and services offered to other banks or other financial institutions. (Wholesale finance
means financial services, which are conducted between financial services companies and
institutions such as banks, insurers, fund managers, and stockbrokers.)

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