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 Lead in

1. How do commercial banks make a profit?


Answer :
o Fees
There are fees attached to most of the product that a commercial bank provides,
and there feeds add up to a large part of the average annual profit. They stand to
earn treefold throught monthly fees, use fees and payment fees.
o Loans
Commercial bank lend money to consumens in the from of car loans, mortgages
and personal loans. The money distributed for these loans comes from the
deposits of other bank costumers, whale with drawals may be restricted by a
minimum balance, or by the term of their certificate of deposit accounts, for
instance. In this way, the finances of several bank costomers are managed using
the founds of perhaps one deposit.
o Credit cards
In many cases, banks welcome new card holders with relatively low or zero
interest rate on purchases or balance transfers. The catch is that after the
introductory period these rates jump up to the norm, which can range anywhere
from 15 percent to 50 percent. The profit windfall for the bank can be
substantial.
2. How do banks decide who to lend money to?
Answer:
Kreditors use various things to help then decide whether you are at risk or not.
On this page you can find out:
o How your credit rating was decided
o What information creditors can find about you to help them decide whether to
lend to you
o What you can do if you are decide credit, including how yo correct incorrect
information on your credit reference file
o How to get a copy of your credit reference file
3. How do they decide what rates to lend at?
Answer:
Interest rates are determined by three forces. The first is the federal reserve, which
sets the fed funds rate. That affects short term and variable interest rates. The
second is investor demand for U.S. Treasury notes and bonds the affects long-term
and fixed interest rates. The third force is the banking industry. They offer loans and
mortgages that can change interest rates depending on business needs. For example,
a bank may raise interest rates on a credit card if you miss a payment.
4. How can large corporations raise finances?
Answer:
o Debt capital
The most common types of debt capital are bank loans, personal loans,
bonds, and credit card debt. When looking to expand, a company can raise
additional capital by applying for a new loan or opening a line of credit. This
type of funding is referred to as debt capital because it involves borrowing
money under a contractual agreement to repay the punds at a later date.
o Equity capital
Equity capital is generated by the sale of shares of stock. If taking on more
debt is not financially viable, a company can raise capital by selling additional
shares. These can be either common shares or preferred shares.
5. Why do large companies generally prefer not to borrow from banks?
Answer:
It’s too expensive on other hand, you can either raise more fonds from investor. Offer
your bonds or stocks to investor and they like your company they will give you
money. Now, when you have to pay the bank you have to pay the bank religiously on
specified time frame, specified ammont and specified interest.

 Reading : Banks and bonds


 1. What are the two main ways in which large companies and corporations raise capital?
Answer :
Then they discovered that they could borrow at a lower rate by raising money
directly from the public (and from institutional investors like insurance companies
and pension funds), by issuing bonds. This process of disintermed action-cutting out
the intermediary (the bank) between the borrower and the lenders-is obviously not
a good thing for commercial banks.
1. What might explain why only one bank has a AAA rating?
Answer :
The highest rating (AAA or Aaa) is given only to top quality institutions, with minimal
credit risk.
2. What form of income do banks now get from large companies?
Answer :
On the other hand, companies use investment banks to issue their bonds for them,
permitting banks to make money from fees rather than from interest.
 2. Use a word aech box to make word combinations from the text. You can use some
wors more than once. Then use some of the word combinations to complete the
sentences below
Answer :
1. Bondholders get date maturity until the bond’s date payments
2. Because bond’s are investment tradeable you can sell them any time, but their
price will depend on the company’s but situation tradeable and the level of
interest rates
3. Only companies with hardly any investment rating get AAA ris financial

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