Purpose of Issue-CDs, Financial Management

Purpose of Issue

CDs benefit both issuers and investors. From the issuers (banks) point of view, CDs are issued foreseeing the advantages over conventional deposits. The motives behind issuing CDs are control over cost of funds and assured availability of funds for specific period. The banks are constrained to define an interest rate structure for their customers across the board. It is operationally difficult to offer different rates of interest for different deposits, especially with a wide network as seen on the Indian scenario. Consequently, most of the depositors will be paid the same rate of interest. However, in case of Certificates of Deposit the interest is determined on a case-to-case basis. Since the volumes are large, the rates offered on CDs are more sensitive to call rates than the rates on term deposit. It is possible to discriminate between two customers and give different rates, which is not normally possible in case of term deposits. The conventional deposits though having a fixed maturity can be withdrawn prematurely; whereas, investors have to wait till the CDs mature or approach the secondary market to sell them. Issuance of CD helps banks to maintain the market share. From the investors' point of view, CDs form a better way of deploying their short-term surplus funds. CDs offer higher yields when compared to conventional deposits, while the secondary market offers liquidity. They can be assured of interest and principal payment normally.

 

Posted Date: 9/11/2012 4:14:57 AM | Location : United States







Related Discussions:- Purpose of Issue-CDs, Assignment Help, Ask Question on Purpose of Issue-CDs, Get Answer, Expert's Help, Purpose of Issue-CDs Discussions

Write discussion on Purpose of Issue-CDs
Your posts are moderated
Related Questions
Q. In planning a restaurant, it is estimated that a revenue of $6 per seat will be realized if the number of seats is at most 50. On the other hand, the revenue on each seat will d

What is a marginal cost of capital schedule (MCC)?  Is the schedule always a horizontal line?  Explain. The marginal cost of capital schedule is a graphic representation of the

ESSENTIAL FEATURES OF A SOUND CAPITAL MIX A sound or an appropriate Capital structure should have the following essential features : highest possible use of leverage

Q. What do you mean by synergy? Synergy: synergy refers to the greater combined value of merged firms than the sum of the values of individual units. It is something like one p

London Interbank Offered Rate (LIBOR) This is the base lending rate which is charged by banks in the London Eurocurrency market. LIBOR is the European equivalent of the U.S. pr

#question.After read all the available information carefully, prepare a two page (double-spaced) essay and answer the following questions: Assume that we have the following data: C

Q. Basic objectives of cash management? The basic objectives of cash management are two-fold: 1) To meet the cash disbursement needs (payment schedule); and 2) To minimize f

Residual Method We know that a time series consisting of annual data for longer periods is depicted by trend lines. This facilitates us to isolate the component of secular tre

Evaluate the extent to which the Balanced Scorecard: The Balanced Scorecard has been described as an effective measurement system which enables managers of an organisation to

The consolidated income statement for AB Group for the year ended 30 June 2010: (all amounts in the workings are in $000, unless stated otherwise)