GENERAL UTILITY SERVICES OF BANKS

What is a Bank?
A bank is a financial instituition which deals with deposits, advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it.

(A)
(a) (b) (c) (d)

Primary Functions
Saving Deposit Current Account Fixed Deposit Recurring Deposit

1.Accepting Deposits

2.Lending and Investment

(a) (b) (c) (d) Overdraft Cash credit Loans Discounting of bills of exchange

(B)

Secondary Functions

1.Agency Functions 2.General Utility Functions

(a) (b) (c) (d) (e)

ATM Travelers Cheque Safe Deposit Lockers and Vaults Letter of Credit Credit cards and debit cards

(f) Merchant banking

ATM
Introduction
A automated teller machine (ATM) or the automatic banking machine (ABM) is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip, that contains a unique card number and some security information such as an expiration date or CVVC (CVV). Authentication is provided by the customer entering a personal identification number (PIN). Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or credit card cash advances) and check their account balances as well as purchase cell phone prepaid credit. If the currency being withdrawn from the ATM is different from that which the bank account is denominated in (eg: Withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. Thus, ATMs often provide the best possible exchange rate for foreign travelers [1] and are heavily used for this purpose as well.

ATMs are known by various other names including Automated Transaction Machine,[2] automated banking machine, cash point (in Britain), money machine, bank machine, cash machine, hole-in-the-wall, Bancomat (in various countries in Europe and Russia), Multibank (after a registered trade mark, in Portugal), and Any Time Money (in India).

History
An automatic teller machine or ATM allows a bank customer to conduct their banking transactions from almost every other ATM machine in the world. As is often the case with inventions, many inventors contribute to the history of an invention, as is the case with the ATM. In 1939, Luther Simjian patented an early and not-so-successful prototype of an ATM. However, some experts have the opinion that James Good fellow of Scotland holds the earliest patent date of 1966 for a modern ATM, and John D White (also of Docutel) in the US is often credited with inventing the first free-standing ATM design. In 1967, John Shepherd-Barron invented

and installed an ATM in a Barclays Bank in London. Don Wetzel invented an American made ATM in 1968. However, it wasn't until the mid to late 1980s that ATMs became part of mainstream banking.A first cash dispensing device was used in Tokyo in 1966. Although little is known of this first device, it seems to have been activated with a credit card rather than accessing current account balances. This technology had no immediate consequence in the international market ATMs first came into use in December 1972 in the UK; the IBM 2984 was designed at the request of Lloyds Bank. On 2nd September in 1969, America's first automatic teller machine (ATM) makes its public debut, dispensing cash to customers at Chemical Bank in Rockville Center, New York. ATMs went on to revolutionize the banking industry, eliminating the need to visit a bank to conduct basic financial transactions. By the 1980s, these money machines had become widely popular and handled many of the functions previously performed by human tellers, such as check deposits and money transfers between accounts. Today, ATMs are as indispensable to most people as cell phones and email. Today there are well over 1 million ATMs around the world, with a new one added approximately every five minutes. It's estimated that more than 170 Americans over the age of 18 had an ATM card in 2005 and used it six to eight times a month. Not surprisingly, ATMs get their busiest workouts on Fridays.

Location
ATMs are placed not only near or inside the premises of banks, but also in locations such as shopping centers/malls, airports, grocery stores, petrol/gas stations, restaurants, or any place large numbers of people may gather. These represent two types of ATM installations: on and off premise. On premise ATMs are typically more advanced, multi-function machines that complement an actual bank branch's capabilities and thus more expensive. Off premise machines are deployed by financial

institutions and also ISOs (or Independent Sales Organizations) where there is usually just a straight need for cash, so they typically are the cheaper mono-function devices. In Canada, when an ATM is not operated by a financial institution it is known as a "White Label ATM". In North America, banks often have drive-thru lanes providing access to ATMs. Many ATMs have a sign above them indicating the name of the bank or organization owning the ATM, and possibly including the list of ATM networks to which that machine is connected. This type of sign is called a topper

Hardware
An ATM is typically made up of the following devices:

CPU (to control the user interface and transaction devices) Magnetic and/or Chip card reader (to identify the customer) PIN Pad (similar in layout to a Touch tone or Calculator keypad), often manufactured as part of a secure enclosure. Secure cryptoprocessor, generally within a secure enclosure. Display (used by the customer for performing the transaction) Function key buttons (usually close to the display) or a Touch screen (used to select the various aspects of the transaction) Record Printer (to provide the customer with a record of their transaction) Vault (to store the parts of the machinery requiring restricted access) Housing (for aesthetics and to attach signage to)

ATM Card

An ATM card (also known as a bank card, client card, key card or cash card) is a card issued by a bank, credit union or building society that can be used at an ATM for deposits, withdrawals, account information, and other types of transactions, often through interbank networks. Some ATM cards can also be used:

at a branch, as identification for in-person transactions at merchants, for EFTPOS (point of sale) purchases

ATM cards are typically about 86 54 mm, i.e. ISO/IEC 7810 ID-1 size. Unlike a debit card, in-store purchases or refunds with an ATM card can generally be made in person only, as they require authentication through a personal identification number or PIN. In other words, ATM cards cannot be used at merchants that only accept credit cards. However, other types of transactions through telephone or online banking may be performed with an ATM card without inperson authentication. This includes account balance inquiries, electronic bill payments or in some cases, online purchases.

Magnetic stripe cloning can be detected by the implementation of magnetic card reader heads and firmware that can read a signature embedded in all magnetic stripes during the card production process. This signature known as a "MagnePrint" or "Blueprint" can be used in conjunction with common two factor authentication schemes utilized in ATM, debit/retail point-of-sale and prepaid card applications. ATM cleaning cards are the primary means of cleaning ATMs to ensure that the machine stays functioning properly.

How does an ATM work?

You're short on cash, so you walk over to the automated teller machine (ATM), insert your card into the card reader, respond to the prompts on the screen, and within a minute you walk away with your money and a receipt. These machines can now be found at most supermarkets, convenience stores and travel centers. Have you ever wondered about the process that makes your bank funds available to you at an ATM on the other side of the country?

An ATM (Automated Teller Machine) is a computerized system individuals can use to deposit money into their banking accounts, withdraw money from their accounts, check balances and transfer money from one account to the other. The ATM is made up of much more than a computer, however. In order to perform all of its functions, the ATM has many different parts. These include the computer, which includes the interface and the keypad for the customer to use, and a magnetic card reader, vault, etc.The vault of an ATM is within the footprint of the device itself and is where items of value are kept. Scrip cash dispensers do not incorporate a vault. Mechanisms found inside the vault may include:

Dispensing mechanism (to provide cash or other items of value) Deposit mechanism including a Cheque Processing Module and Bulk Note Acceptor (to allow the customer to make deposits) Security sensors (Magnetic, Thermal, Seismic, gas) Locks: (to ensure controlled access to the contents of the vault) Journaling systems; many are electronic (a sealed flash memory device based on proprietary standards) or a solidstate device (an actual printer) which accrues all records of activity including access timestamps, number of bills dispensed, etc. - This is considered sensitive data and is secured in similar fashion to the cash as it is a similar liability. The latter allows the machine to read the magnetic strip on the back of a customer's debit or ATM card. The machine will also include a display screen, function buttons (usually placed near the screen and covering the functions of saying "yes," "no," and "cancel"), a printer and a cash drawer. Depending on the ATM, it may also provide envelopes for deposits and security cameras.

Advantages and Disadvantages of ATM

ADVANTAGES OF ATM:

ATM Advantages ATM supports voice, video and data allowing multimedia and mixed services over a Single network. High evolution potential, works with existing, legacy technologies Provides the best multiple service support Supports delay close to that of dedicated services Supports the broadest range of burstiness, delay tolerance and loss performance through the implementation of multiple QoS classes Provides the capability to support both connection-oriented and connectionless traffic using AALs Able to use all common physical transmission paths like SONET. Cable can be twisted-pair, coaxial or fiber-optic Ability to connect LAN to WAN Legacy LAN emulation Efficient bandwidth use by statistical multiplexing Scalability Higher aggregate bandwidth

DISADVANTAGES OF ATM:

Flexible to efficiencys expense, at present, for any one application it is usually possible to find a more optimized technology Cost, although it will decrease with time New customer premises hardware and software are required Competition from other technologies -100 Mbps FDDI, 100 Mbps Ethernet and fast Ethernet Presently the applications that can benefit from ATM such as multimedia are rare The wait, with all the promise of ATMs capabilities many details are still in the standards process

Travelers Cheque

History
Traveler's cheques were first issued on 1 January 1772 by the London Credit Exchange Company for use in ninety European cities, and in 1874 Thomas Cook was issuing 'circular notes' that operated in the manner of traveler's cheques. American Express was the first company to develop a largescale traveller's cheque system in 1891, and is still the largest issuer of traveler's cheques today by volume. American Express's introduction of traveler's cheques is traditionally attributed to employee Marcellus Flemming Berry, after company president J.C. Fargo had problems in smaller European cities obtaining funds with a letter of credit.

Terminology
Legal terms for the parties to a traveler's cheque are the obligor or issuer, the organization that produces it; the agent, the bank or other place that sells it; the purchaser, the natural person who buys it, and the payee, the entity to whom the purchaser writes the cheque for goods and/or services. For purposes of clearance, the obligor is both maker and drawee.

Usage
As traveler's cheques can usually be replaced if lost or stolen (if the owner still has the receipt issued with the purchase of the cheques showing the serial numbers allocated), they are often used by people on vacation in place of cash. As a result, Travelex now also sells "traveller's cheque cards" used like credit cards. Conversely, American Express discontinued their own traveler's cheque cards, announcing they would no longer honor the cards effective October 31, 2007. Traveler's cheques are available in several currencies such as U.S. dollars, Canadian dollars, pounds sterling, Japanese

yen, and euro; denominations usually being 20, 50, or 100 (x100 for Yen) of whatever currency, and are usually sold in pads of five or ten cheques, e.g., 5 x 20 for 100. Traveler's cheques do not expire, so unused cheques can be kept by the purchaser to spend at any time in the future. The purchaser of a supply of traveler's cheques effectively gives an interest-free loan to the issuer, which is why it is common for banks to sell them "commission free" to their customers. The commission, where it is charged, is usually 1-2% of the total face value sold.

Use and acceptance

Upon obtaining custody of a purchased supply of traveler's cheques, the purchaser should immediately write his or her signature once upon each cheque, usually on the cheque's upper portion. The purchaser will also have received a receipt and some other documentation that should be kept in a safe place other than where he or she carries the cheques. When wanting to cash a traveler's cheque while making a purchase, the purchaser should, in the presence of the payee, date and countersign the cheque in the indicated space, usually on the cheque's lower portion (if at a restaurant, it may be helpful to ask the waiter to watch and wait for this to be done) Applicable change for a purchase transaction should be given in local currency as if the cheques were banknotes. Several travellers cheques have been created; the most widely accepted travellers cheques are: Thomas Cook American Express

Deposit and settlement

A payee receiving a traveler's cheque should follow its normal procedures for depositing cheques into its bank account: usually, endorsement by stamp or signature and listing of the cheque and its amount on the deposit slip. The bank account will be credited with the amount of the cheque as with any other negotiable item submitted for clearance. In the United States, if the payee is equipped to process cheques electronically at point of sale they should still take custody of the cheque and submit it to a financial institution, particularly to avoid any confusion on the part of the purchase

Loss or Theft
Loss or theft of traveler's cheques should be reported immediately to the issuer and to the local police authority. The receipt issued when the cheques were purchased showing the serial numbers of the cheques will expedite the refund process

Security Reasons
It is a reasonable security procedure for the payee to ask to inspect the purchaser's picture ID; a driving licence or passport should suffice, and doing so would most usefully be towards the end of comparing the purchaser's signature on the ID with those on the cheque. The best first step, however, that can be taken by any payee who has concerns about the validity of any traveler's cheque, is to contact the issuer directly; a negative finding by a third-party cheque verification service based on an ID check may merely indicate that the service has no record about the purchaser (to be expected, practically by definition, of many travelers), or at worst that he or she has been deemed incompetent to manage a personal chequing account (which would have no bearing on the validity of a traveller's cheque).

Safe Deposit Lockers and Vaults

Introduction
Banks are Financial Institutions which have the responsibility of safeguarding our valuable assets. These valuable assets include money, jewellery, important documents, etc. To achieve this purpose, they use Safe Deposit Lockers and Safe Deposit Vaults.

Safe Deposit Lockers

Definition
Whenever you read in the newspaper about a house being burgled and loss of jewellery and money reported, what is the first question that comes to your mind? Why did the family keep such valuables in the house?

It is for this reason that banks provide us with the facility of putting these valuables in a Safe Deposit Lockers.

Safe Deposit Locker Facility is one of the subsidiary services provided by the bank for keeping the valuables in the Safe Deposit Locker. This provides safety to the belongings of the customers against theft / burglary. Bank provides specially designed lockers kept at specially built strong rooms for keeping the valuables of the hirer purchased from reputed manufacturers.

Safe deposit lockers took off in a big way in the early eighties and have gained significance in the light of increasing insecurity.

Most banks offer safe deposit lockers in branches, though at some places there is a long waiting list before you finally get one. The rates and fees for a locker differ from bank to bank.

But regardless of whether it is a private sector or public sector bank you have to have an account with the bank to apply for the facility. Also, fees will vary depending on the size of the locker.

Features:
Usually banks have three sizes of lockers - small, medium and large.

Locker is operated under double locking system and can be opened with combination of two keys one with the bank called Master Key and the other with the hirer called Hirers Key. The keys will be identified with an appropriate identification code / number.

Advantages and Disadvantages:

The Advantages of Safe Deposit Lockers are as follows:

1. Security Since the security of the lockers is taken up by the bank, we need not worry about it

2. Protection against theft/burglary Since the bank has adequate security to protect its premises, we can be assured that our valuables are protected against theft.

As against the advantages, disadvantages may prevail.

there

are

rare

cases

where

The Disadvantages of Safe Deposit Lockers are as follows:

1. Away from home

Since the valuables are not under our observation, we may unnecessarily worry about them as to what would happen when we need them and the bank is closed at that particular point of time.

2. Theft/Burglary in bank Whenever there is a theft or burglary attack in a bank, there is a risk that the thieves may target the lockers for our valuable contents.

3. Loss of Keys If we or the bank lose the keys to the locker and we urgently need the valuables inside it, then we may not be able to get the contents of the locker.

Procedure for getting and operating Safe Deposit Locker

Locker is operated under double locking system and can be opened with combination of two keys one with the bank called Master Key and the other with the hirer called Hirers Key. The keys will be identified with an appropriate identification code / number.

Lockers could be hired to Individuals, either singly or jointly, Partnership Firms, Limited Companies, Associations and Clubs but not to minors.

While hiring to joint hirers and other than individuals clear instructions on operations and closure shall be obtained and bank shall comply with such instructions without exception.

Charges and rates:

Private sector banks like ICICI Bank and HDFC Bank do not charge a one-time deposit in addition to the annual fees like most public sector banks do.

The only criterion for obtaining a locker in a private sector bank is that one should have a satisfactorily maintained bank account with a steady minimum balance. The lockers are allocated on the basis of a first-come-first-serve basis or availability.

ICICI Bank, for instance, charges Rs. 1,800 annually for the smaller locker size and Rs. 4,000 for the large locker. This includes the rent, stamp and admission fee.

Public sector banks, however, charge a much lower annual fee. But availability of lockers being a key issue, they charge a deposit which is sometimes as high as Rs. 50,000 - Rs. 100,000 depending on the waiting list.

Like State Bank Of India's branch which charges Rs. 50,000 as a deposit that can be paid in installments over a period of time. The annual fee is Rs. 500. Similarly, Indian Bank charges Rs. 10,000 as a deposit and Rs. 600 annually for a medium sized locker. Indian Bank calculates the deposit such that the interest earned on it matches the annual fee charged for the locker facility.

Allotment of lockers
Allotment of lockers shall be based on the duly filled in application of the prospective hirers on the printed format provided by the bank.

A waiting list for the purpose of allotment of lockers shall be maintained at the branches.

All such applications received for allotment of a locker should be acknowledged and given a waiting list number.

At least 80% of the lockers should be allotted by the branches on first-come-first-served basis. Branch Managers at their discretion could allot the remaining 20% of the lockers to valued customers on business considerations.

Preference may be given to existing customers of the bank.

Surrender of Locker
In simple terms, Surrender of Locker means that we no longer want to use the locker provided by the bank.

Locker can be surrendered by the hirer/s at any time during the contract period. Bank can also request for surrender of locker with due notice.

The lock of the surrendered locker shall be changed when a locker is surrendered.

Nomination
If the sole locker hirer nominates a person, branches will give to such nominee access of the locker and liberty to remove the contents of the locker in the event of the death of the sole locker hirer. In case the locker was hired jointly with the instructions to operate it under joint signatures, and the locker hirer nominates person, in the event of death of any of the locker hirers, the branch will give access of the locker and the liberty to remove the contents jointly to the survivor and the nominee.

Safe Deposit Vault

Definition of Vault
A vault is a strengthened room or compartment used for the safe storage of valuables, especially one in a bank.

Definition of Safe Deposit Vault

A bank vault (or strongroom) is a secure space where money, valuables, records, and documents can be stored. It is intended to protect their contents from theft, unauthorized use, fire, natural disasters, and other threats, just like a safe. But unlike safes, vaults are an integral part of the building within which they are built, using armored walls and a tightly fashioned door closed with a complex lock.

Features

1. Security Usually, a bank provides maximum security to the vault as it contains the highest valued assets that the bank holds.

2. Theft-proof The Safe Deposit Vaults are usually designed to be foolproof against theft as they are designed in such a way that only the key to the vault can open it.

Letter of Credit
Introduction
The LC can also be source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment were insured against loss or damage in transit.

However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin.

DEFINATION:A LETTER OF CREDIT IS A LETTER ISSUED BY AN OPENING BANK IN FAVOUR OF THE EXPOTER AUTHORISING HIM TO DRAW A BILL UPTO A CERTAIN AMOUNT COVERING A SPECIFIED SHIPMENT OF GOODS AND ENSURING HIM THE PAYMENT AGAINST THE DELIVERY OF PRSCRIBED SHIPING DOCUMENTS IN HIS OWN COUNTRY.

What is a Letter of Credit?

A Letter of Credit is a payment term generally used for international sales transactions.It is basically a mechanism, which allows importers/buyers to offer secure terms of payment to exporters/sellers in which a bank (or more than one bank) gets involved. The technical term for Letter of credit is 'Documentary Credit'. At the very outset one must understand is that Letters of credit deal in documents, not goods. The idea in an international trade transaction is to shift the risk from the actual buyer to a bank. Thus a LC (as it is commonly referred to) is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the buyer. The Buyer is the Applicant and the Seller is the Beneficiary<. The Bank that issues the LC is referred to as the Issuing Bank which is generally in the country of the Buyer. The Bank that Advises the LC to the Seller is called the Advising Bank which is generally in the country of the Seller. The specified bank makes the payment upon the successful presentation of the required documents by the seller within the specified time frame. Note that the Bank scrutinizes the

'documents' and not the 'goods' for making payment. Thus the process works both in favor of both the buyer and the seller. The Seller gets assured that if documents are presented on time and in the way that they have been requested on the LC the payment will be made and Buyer on the other hand is assured that the bank will thoroughly examine these presented documents and ensure that they meet the terms and conditions stipulated in the LC.

Parties of Letter of Credit

Following are the parties to letter of credit:
1)

Opener ( Importer )
He is a person who imports goods in his country. He is asked by exporter to arrange a letter of credit against the delivery of goods. He is called the opener or applicant. He requests his bank to issue a letter of credit.

2) Beneficiary ( Exporter )
He is a person who exports goods to importer. He is one in whose favour letter of credit is opened and he is called the beneficiary as he gets the benefit of undertaking given by the opening bank to honor the bill drawn on opener/importer.

3) Opening Bank ( Importers Bank )

The bank issuing letter of credit is called opening bank. This bank gives an undertaking to exporter.Therefore, the

value of letter of credit depends upon the goodwill and reputation of opening bank.
4)

Negotiating Bank ( Exporters Bank )

When the exporter draws the bill under the terms and conditions of letter of credit he negotiates the bill with the banker who pays the amount of bill to the exporter. Such a bank is called negotiating bank.

5) Advising Bank ( Branch of Negotiating Bank in Importers Country )

It is a bank in the importers country, which is a branch of the negotiating bank located in exporters country. When, advising bank gets notice from the opening bank, about the issue of letter of credit, it informs to negotiating bank and then only the shipment of goods can take place. After the importer receives the goods and proper documents, with the help of the acknowledgement of the advising bank, the exporter will definitely get his payment.

Types of letter of credit:

Revocable Letter of Credit
It is that letter of credit which could be revoked i.e. drawn, cancelled, commented or modified by opening bank without notice of the beneficiary. According to article 2 of the uniform customs and practices for documentary credit revocable does not bonds to a legal understanding between the banks concerned and the exporter because such a credit may be modified or cancelled at any time without notice to beneficiary.

Irrevocable Letter of Credit

Article 3 of the uniform customs and practices for documentary uniform customs and practices of documentary credit irrevocable credit is one which cannot be recovered without the prior consent of all the parties concerned similarly the credit can neither be modified nor concern without the consent of the exporter.

Clean Letter of Credit

A clean letter of credit is one in which payment is made to beneficiary against a clean draft. The bank does not put any condition as regards to acceptance and payment of bill.

Documentary Letter of Credit

Most of the letter of credit is documentary letter of credit. Payment is being made by the bank against delivery of the full set of documents as lay down by terms of credit. The important documentary letter of credit includes the following: Bill of lading Insurance policy Certificate of origin Packing list Bills of exchange Commercial invoice Shipping bill Gsp certificate Certificate of quality inspection.

Red Clause Letter of Credit

Under an ordinary letter of credit the advising bank can only negotiate bills drawn by the beneficiary. Some credit may also authorize the advising bank to branch advance to the beneficiary.since; such a clause is to be generally printed in red. These credits are come to be known as red clause letter of credit.

Green Cause Letter of Credit

The green clause is an extension of the red clause letter of credit. In this case, it explains the grant of storing facility to the beneficiary. In other words, this type of credits is the means by which a beneficiary can get advance from the bank at the exporting country at the instance of opener.

Transferable Letter of Credit

Transferable letter of credit is disposable in case of transferable letter of credit. The opening bank should clearly mark the letter of credit as a transferable on in this case, the beneficiary can transfer the letter of credit by giving instruction on to the advising bank to transfer letter of credit in whole or part to 3 rd party. According to uniform customs and practices from documentary credit. The person in whose favour, the credit has been transfer by first beneficiary cannot further transfer. It however, where the credit vegans permits drawings its original amount can be specified up into two or more parts and each of this part can be transferred to different parties. Because all such transfer are deemed to constitute only one transfer.

BacktoBack Letter of Credit

It serves a similar purpose as transferable letter of credit. When there is absence of transferable letter of credit. If an intermediate in the trade has received an ordinary credit in his favour he will not be able to transfer it in favour of action supplier or honor in this case, he can ask may bank in his open a fresh credit in favour of action supplier with himself as a opener for the goods converted by the original credit. A banker may be willing to open such a inland letter of credit against security to the original letter

of credit. Although the party may not be enjoying the credit facility with the bank

Open Letter of Credit

Under open letter of credit the opening bank name will not be mentioned the name of negotiating bank and advising bank. As a result the beneficiary can approach may bank in his case. Any bank can negotiate the bill under this transaction.

Restrictive Letter of Credit

Under restrictive letter of credit the opening bank will specifically mention the name of negotiating or advising bank. This advising bank can be there on branch or on their correspondent. In this case the exporter can negotiate the document only to the particulars bank.

Revolving Letter of Credit

An ordinary letter of credit is opened for a fixed amount of the bill, one bill aggregative the amount are negotiated the credit becomes fully utilized. No further negotiating can take place therefore the credit unless its amount is increased. Under revolving letter of credit the amount utilized can be reinstated so that original amount is once again available for further negotiation. Under such an agreement the total amount of bill negotiated under the credit could not be more than the amount of credit subjected only to the condition that all negotiation will have to take place during the period of validity of credit.

Common Mistakes Made With Letters Of Credit:

Exporters make the following common mistakes, which cause them to lose the sale or not get paid.
o o o o o o o o o o

Presenting documents late, after the letter of credit has expired. Shipping their goods after the specified date. Making a partial shipment when partial shipment is not allowed. Not presenting the proper documents. Not legalizing the documents. Not obtaining completed bills of lading. Not obtaining required insurance. Submitting copies instead of originals. Spelling mistakes. Mathematical mistakes.

In addition to creating payment problems, mistakes can also cause problems for the importer when clearing customs.

Sample Form of Requesting a Letter of Credit

Dear International Buyer: We are providing the following instructions as a guideline to be used when opening a letter of credit to us. Because a letter of credit is a very critical document, please verify that the information is accurate and complete, without any mistakes which can create a discrepancy and lead to our subsequent request for an amendment, and delay the shipment. Regarding your purchase order number dated , please ask your bank to open an irrevocable, at sight, commercial letter of credit according to the following terms and conditions. Beneficiary Name

Beneficiary Address

Requested Advising Bank Name

Requested Advising Bank Address

Telephone

Fax

Swift

In the amount of US$

The letter of credit must be payable at the counters of be negotiable and payable at the counters of a bank in

or it must .

The letter of credit must be in the possession of the Advising Bank and received by us

days before the agreed upon shipment date.

Shipment will occur days after an acceptable letter of credit is in the possession of the Advising Bank. Shipment terms are:

Incoterms 2000

Partial shipments are permitted. Latest shipment date is

. Latest expiration date is

Documentary requirements are: 1. Signed commercial invoice 2. Packing list 3. 4.

originals and copies

copies

originals and

Documents are to be presented within

days from the shipping date.

All bank charges will be paid by the Applicant.

Credit Cards
A Credit Card is part of a system of payments named after the small plastic card issued to users of the system. It enables the card holder to buy goods and services based on the holders promise to pay for the goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.

How does a credit card work?

In general, the way a credit card works is you go to a store, or these days even online, pick out the item you want, plug in your credit card number and your purchase is complete. The item isn't actually paid for yet, as far as you're concerned, because no money has changed hands. After the transaction the merchant will receive payment from the credit card company who issued you the card, usually within 30 days and in turn you will receive a bill from your credit card company, also within 30 days, at which time you must remit at least a partial payment. Each credit card company has different terms. Some, like American Express, require you to pay your balance in full.

How does a credit card look?

1 Issuing bank logo Logo 2 EMV chips on smart cards 3 Hologram 4 Credit Card Number

5 Card Brand 6 Expiration Date 7 Card Holder Name 8 Contactless Chip

Advantages of Credit Card

The advantages of a credit card are that you don't have to have the money available at that time to pay for your purchase. You will usually have at least 30 days to pay for the item and even then, based on the terms of your card, may not even have to pay the whole balance.

Disadvantages of Credit Card

The disadvantages of a credit card are that it becomes way too easy to use them and run up large balances. Then when it comes time to even pay partial payments it can be very difficult to make those payments. Add to that the finance charges and

people with credit cards can run up large debts that they sometimes never recover from.

Debit Cards
A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Functionally, it can be called an electronic cheque, as the funds are withdrawn directly from either the bank account, or from the remaining balance on the card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card.

How does a Debit Card work?

The way a debit card works is basically the same in most respects. You make your purchase, plug in your number or swipe your card and the purchase goes through. The merchant, again,

will get paid by the company who issued you the debit card. Here is where the difference is. With a debit card the money already has to be in your account. In other words, you've already paid in a certain amount of money to be available to your debit card. By using the card the money is simply transferred out of your account and your balance is reduced until it reaches zero, at which time you have to pay more money into the account or the card can't be used.

Advantages of Debit Card

The advantages of a debit card are that you know you have the money in your account to pay for the item and you don't have to worry about future bills or finance charges. It's as good as cash without having to carry cash around with you.

Disadvantages of Debit Card

The disadvantages of a debit card are that if you don't have the money in your debit card account then you can't use it. In a sense it's pretty much the same as if you don't have cash on you.

Merchant Banking
In banking, a merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and to wealthy individuals. The term can also be used to describe the private equity activities of banking. The chief distinction between an investment bank and a merchant bank is that a merchant bank invests its own capital in a client company whereas an investment bank purely distributes (and trades) the securities of that company in its capital raising role. Both merchant banks and investment banks provide fee based corporate advisory services including in relation to mergers and acquisitions. Merchant banks, now so called, are in fact the original "banks". These were invented in the Middle Ages by Italian grain merchants. As the Lombardy merchants and bankers grew in stature based on the strength of the Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution were attracted to the trade. They brought with them ancient

practices from the Middle and Far East silk routes. Originally intended for the finance of long trading journeys, these methods were now utilized to finance the production of grain.

In India
"Merchant Banking is an important service provided by a number of financial institutions that helps in the growth of the corporate sector which ultimately reflects into the overall economic development of the country. Merchant banks were expected to perform several functions like issue management, underwriting, portfolio management, loan syndication, consultant, advisor and host of other activities. SEBI was also made all powerful to regulate the activities of merchant banks in the best interest of investors and economy. Apart, merchant banking was the necessity of banks themselves which were in need of nonfund based income so as to improve their profitability margins by all means in the changed economic scenario. Now, it could be anybody's anxiety to know whether merchant banks are performing their duties honestly as they were expected to do. What duties they performs most and in what capacity. Whether merchant banking business helped banks themselves to improve their overall profitability. Does the socio, political and economic environment prevailing today sufficiently warrant, the growth of merchant banking or otherwise? An honest attempt is being made to seek answer of these questions and also to suggest remedial measures wherever possible on the basis of empirical study done, the writing of which appears in the form of this book." (jacket)

History

The Jewish trader performed both finance that is credit and an underwriting which is insurance functions. they would derive an income from lending the farmer money to develop and manufacture through seeding, growing, weeding, and harvesting his annual crop the crop loan at the beginning of the growing season. He would underwrite the delivery of the crop through crop or commodity insurance to the merchant wholesaler who was the ultimate purchaser of the farmers harvest. And he would make arrangements to supply this buyer through alternative sources (the merchant function) of supply (such as grain stores or alternate producer markets), should any particular farming district suffer a seasonal crop failure. He could also keep the farmer (or other commodity producer) in business during a drought or other crop failure, through the issuance of a crop (or commodity) insurance against the hazard of failure of his crop. Thus in his underlying financial function, the merchant banker (trader) would ensure the continuous smooth flowing of the commodity crop, wool, salt; salt-cod, etc. markets by providing both credit and insurance. It was a short step from financing trade on their own behalf to settling trades for others, and then to holding deposits for settlement of "billete" or notes written by the people who were still brokering the actual grain. And so the merchant's "benches" bank is derived from the Italian for bench, banca, as in a counter in the great grain markets became centers for holding money against a bill billette, a note, a letter of formal exchange, later a bill of exchange, later still, a cheque. These deposited funds were intended to be held for the settlement of grain trades, but often were used for the bench's own trades in the meantime. The term bankrupt is a corruption of the Italian banca rotta, or broken bench, which is what happened when someone lost his traders' deposits. Being "broke" has the same connotation. A sensible manner of discounting interest to the depositors against what could be earned by employing their money in the trade of the bench soon developed; in short, selling an "interest"

to them in a specific trade, thus overcoming the usury objection. Once again this merely developed what was an ancient method of financing long-distance transport of goods. Islam makes similar condemnations of usury as Christianity. The medieval Italian markets were disrupted by wars and in any case were limited by the fractured nature of the Italian states. And so the next generation of bankers arose from migrant Jewish merchants in the great wheat-growing areas of Germany and Poland. Many of these merchants were from the same families who had been part of the development of the banking process in Italy. They also had links with family members who had, centuries before, fled Spain for both Italy and England. This course of events set the stage for the rise of banking names which still resonate today: Schroders, Warburgs, Rothschilds, even the ill-fated Barings, were all the product of the continental grain trade, and indirectly, the early Iberian persecution of Jews. These and other great merchant-banking families dealt in everything from underwriting bonds to originating foreign loans. Bullion trading and bond issuing were some of the specialties of the Rothschild family.

Merchant banking and investment banking

Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different services. In practice, the fine lines that separate the functions of

merchant banks and investment banks tend to blur. Traditional merchant banks often expand into the field of securities underwriting, while many investment banks participate in trade financing activities. In theory, investment banks and merchant banks perform different functions. Pure investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market. Traditionally, investment banks only participated in underwriting and selling securities in large blocks. Investment banks facilitate mergers and acquisitions through share sales and provide research and financial consulting to companies. Traditionally, investment banks did not deal with the general public. Traditional merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction facilitation. Some of the activities that a pure merchant bank is involved in may include issuing letters of credit, transferring funds internationally, trade consulting and coinvestment in projects involving trade of one form or another. The current offerings of investment banks and merchant banks varies by the institution offering the services, but there are a few characteristics that most companies that offer both investment and merchant banking share. As a general rule, investment banks focus on initial public offerings (IPOs) and large public and private share offerings. Merchant banks tend to operate on small-scale companies and offer creative equity financing, bridge financing, mezzanine financing and a number of corporate credit products. While investment banks tend to focus on larger companies, merchant

banks offer their services to companies that are too big for venture capital firms to serve properly, but are still too small to make a compelling public share offering on a large exchange. In order to bridge the gap between venture capital and a public offering, larger merchant banks tend to privately place equity with other financial institutions, often taking on large portions of ownership in companies that are believed to have strong growth potential. Merchant banks still offer trade financing products to their clients. Investment banks rarely offer trade financing because most investment banking clients have already outgrown the need for trade financing and the various credit products linked to it.

An Article By James S. Ang

Abstract
The objective of this article is to lay the groundwork for a theory of merchant banking. One of the most significant business events in the last decade is the restructuring of American corporations. Modern merchant banks evolved in response to the new demand. They step in and provide their own capital ( equity, bridge loans and junk bonds ) to resolve the magnified financing problem due to the large relative and absolute amount of debt involved. Merchant banks provide strong certification, minimize the costs of obtaining the bundle of services and most important, they transform and extend the transactions horizon.

Introduction

U.S. banking activities occurring after the 1933 GlassSteagall Act are normally categorized as commercial banking or investment banking. Commercial banking activities usually consist of taking deposits from and granting loans to he public, corporations and municipalities. Investment banking, on the other hand, is involved in the underwriting and distribution of securities, portfolio management, information gathering for security analysis, trading securities and advising corporate finance strategies. Although these two types of activities differ in substantial ways, such as how they obtain funds and the types of financing services they provide, they do share the common characteristic of being a pure intermediary. Both are simply acting as a financial middleperson; they do not risk their own capital on either side of financial transactions. A third type of banking activity that is receiving increased attention and importance in recent years is often classified unde the rubric of merchant banking. A merchant bank could be a converted traditional investment bank, a subsidiary of a commercial bank holding company, or a specialized institution organized for a certain type of transactions, e.g., leverage buyout. The merchant bank provides its own capital with a bundle of the usual pure intermediary services such as arranging financing, advising, underwriting. Because it commits its own capital, as a principal investing the equity of the client, for a cetain duration, the merchant bank is no longer a pure intermediary. On the other hand, because it derives substantial revenues from the bundle of services that are inseparable from the capital it committed to the transaction, it is not a pure investment company either. Thus the merchant bank is described as a quasi-intermediary ( or a quasiinvestment company ). This class of financial institutions has not been analyzed. A better understanding of the rationales explain the existence of merchant banks would provide a useful first step in formulating a theory of quasi-intermediary.