BFM Assignment#1

Q1.What is notional pooling? Notional cash pooling is based on the fictive consolidation of account balances - there are no real movements of funds between the accounts. Credit and debit balances on the accounts concerned are notionally brought together and offset to establish a net position for the calculation of interest. How it works? Cash pooling members must have current accounts. Agreement about the service has to be concluded between the bank and all participating companies; Only the same currency pooling can be enforced; The overdraft facility can be connected to all accounts; The balances remain on the accounts of the participants; The daily balances are recorded and the calculation of interest is made on a fictive consolidated amount and interest then computed via the master account. Benefits for company This kind of pooling might be of particular interest to companies with a decentralized organization Structure More efficient using of the internal resources; Increased transparency. By maintaining funds separately in the pool, transparency is increased; Savings on interests costs; Enhanced Investment Opportunities. By having a clear picture of daily liquidity position across multiple entities, greater opportunities are created for the short-term investment of any surplus funds. Q2. Difference between current and savings account. Savings accounts (SA) are accounts maintained by financial institutions that pay interest on the savings put in the account. These accounts are generally not used for business transactions. Any individual either single or jointly can open a savings account. The interest rates of SA accounts are higher. There are no maintenance charges for the account. Cheques of only account holder are collected in SA account. Any cash transactions of 10 lakhs and above in a year will be informed to IT department. Current Account is primarily meant for businessmen, firms, companies, public enterprises etc. that have frequent banking transactions daily. A customer can deposit or withdraw any amount of money any number of times in this type of account. Any major individual, two or more individuals in their joint names, Sole Proprietorship Concerns, Partnership Concerns, Hindu Undivided Family, Limited Companies, Clubs, Societies, Trusts, Executors and Administrators, Others Govt. and semi Govt. bodies, local authorities etc. can open a current account. There is no interest for the account. There are no restrictions on the number of transactions. Cash withdrawals per day exceeds 50000 per day will attract banking cash transaction tax (BCTT) at Re.1 per 1000. Third party cheques will be collected if they are endorsed.

Q.3.How a current and savings account operate? Savings Account may be opened by individuals, nonprofit making Trusts /Associations/Clubs and Hindu Undivided Families (HUF), upon being properly introduced in a manner approved by the Bank and consistent with prudential / KYC guidelines issued by RBI /IBA from time to time and requirements of the Bank. Savings Account can be opened either singly or jointly, with one or more persons. A Savings Account opened jointly with one or more persons can be operated either jointly or severally or as per the mandate made available by the Bank. The arrangement decided upon will also hold for survivor/s in case of individual accounts. The account holder can also authorize persons to operate the account on his behalf by providing a power of attorney, which will be accepted at the sole discretion of the Bank. Savings account can be opened for the sole purpose of savings and not for the purpose of business / trading / professional / profit making activity. Only the Karta elected by all coparceners of the HUF can operate the Savings Account opened in the name of a Hindu Undivided Family (HUF). The Bank shall deal only with the male Karta elected by the HUF. Any request for change in the signatories or in the operation mandate of the Savings Account must be made in writing signed by all account holders along with all documents, as may be prescribed by the Bank in its sole discretion. The same shall not be construed to have been duly received by the Bank, unless it is acknowledged by the Bank as having received the request. An account may be opened on behalf of a minor by his/her natural guardian, or by a guardian appointed by a court of competent jurisdiction and will strictly be at the sole discretion of the bank. 1.2 WITHDRAWALS AND INTEREST: Total number of withdrawals during each six-monthly period should not exceed fifty , twenty four for no frills accounts, or as may be prescribed by the Bank from time to time. The Bank reserves the right to apply a service charge if more than the prescribed number of cheques is drawn in any six month period. Withdrawals using withdrawal slips supplied by the Bank can only be made in case of Savings account opened by individuals and by the account holder in person. The Savings Account should not be overdrawn. No instrument should be drawn on the Savings Account in anticipation of realization of any other instrument or against uncleared effects, unless previously agreed in writing with the Bank. If an instrument is drawn in anticipation of realisation of any other instrument or against uncleared effects, the Bank is not obliged to honour any cheques drawn by the account holder/s. If in doing so, the account would become overdrawn, the Bank reserves the right to debit the account with the charge for each returned cheque and also treat the debit balance in the account as an overdraft. The rate of interest on savings accounts is subject to change from time to time, in accordance with directives of the RBI. Interest will be calculated at 4% on the daily available balance or as required by the regulator or as a result of banks own decision. Interest will be paid at quarterly rests or any other rests as the bank may decide from time to time. The Bank reserves the right to close the Savings Account in case of irregular / improper conduct of the account or the account

holder/s, which will include but not limit to non-maintenance of stipulated minimum balances, dishonour of cheques for want of funds, etc.

2. CURRENT ACCOUNT: 2.1 ACCOUNT OPENING: Current Account can be opened by Individuals, Hindu Undivided Families (HUF), Sole Proprietorship Concerns, Partnership Firms, Private/Public Limited Companies, Associations, Clubs, Societies, Trusts or other Institutions, upon being introduced in a manner satisfactory to the Bank and in line with prudential / Know-Your-Customer (KYC) guidelines issued by the Reserve Bank of India (RBI) from time to time. It shall also be at the sole discretion of the Bank. Current Account can be opened either singly or jointly, with one or more persons. A Current Account opened jointly with one or more persons can be operated either jointly or severally as mandated with the Bank and as per the mandates allowed by the bank. The mandate decided upon will also hold for survivor/s in case of accounts opened by individuals. The account holder can also authorise persons to operate the account on his/her/its behalf by providing a power of attorney, which shall be accepted at the sole discretion of the Bank. Any request for change in the signatories or in the operation mandate of the Current Account, must be made in writing signed by all account holders along with all documents, as may be prescribed by the Bank at its sole discretion. The same will be said as not duly received by the Bank, unless it is acknowledged by the Bank as having received the request. The Current Account holder will provide details of any credit facilities they so enjoy with one or more Banks. In case the bank before opening such account may insist on obtaining a No Objection from the previous bankers then, the same shall be brought by the proposed account holder without any objection. In the event of an incorrect disclosure of not having banked with other bankers, the bank reserves its right to refuse opening of such account and or if opened, close the same at its own discretion. The Current Account holder agrees that the Bank, at its sole discretion, may permit the opening of a Current Account with the Bank, subject to such conditions as the Bank may prescribe. 2.2 WITHDRAWALS AND INTEREST: The Bank shall not pay interest on monies lying in Current Accounts as per the applicable guidelines prescribed by Reserve Bank of India (RBI) and would adhere to such guidelines as they change from time to time. The Current Account should not be overdrawn. No instrument should be drawn on the Current Account in anticipation of realisation of any other instrument or against uncleared effects, unless previously agreed in writing with the Bank. If an instrument is drawn in anticipation of realisation of any other instrument or against uncleared effects, the Bank may (without being bound to) honour such instrument and in such an event the Bank may, at its sole discretion, levy penal / commercial rate of interest and may treat it as an overdraft. Customers will repay the Bank on demand, unconditionally the amounts of overdrafts that the Bank may grant from time to time in the account together with interest accrued thereon. This should not be construed as an agreement, either express or implied, that the Bank is bound to grant any overdraft facility. The Bank reserves the right to grant or deny customers requests for such overdrafts. For overdrawn accounts, interest will be charged at prevailing interest rates on daily outstanding balance. Unless previously agreed in writing with the Bank, the Bank is not obliged to honor any instrument drawn on the Current Account if in doing so the Current Account would become overdrawn. In this circumstance, the Bank reserves the right to debit the Current Account with the charge of each returned instrument. Cash withdrawals should only be made using the printed cheque forms supplied by the Bank and / or through ATMs if installed. The

Bank may, at its sole discretion, close the Current Account in case of irregular / improper conduct of account, or of the account holder/s, which will include but not limited to non-maintenance of stipulated minimum balances, dishonour of cheques for want of funds, etc. Q4. Guidelines of RBI and SEBI

Q5. Difference between savings and current account. There are two common types of accounts that you can open at any bank or credit union--checking and savings accounts. Your checking account is designed for your daily transactions like your bills, your rent or mortgage, or your spending money. Checking accounts usually have lower minimum balances, no limit on the number of transactions, and have an ATM card for managing your account. Using your checking account instead of check cashing and pawn shops can save you hundreds of dollars a year. There is no fee for using your bank or credit unions ATM to withdraw money from your account, so pick one that is close to your home or work. Most people seem to try to save a little money each month. Your savings account is designed to help you prepare for an emergency or an unexpected expense for your car, house, or dorm room. Many people open a savings account because most checking accounts wont earn you interest on your deposits while savings accounts do. Also, when your money is tucked away in savings, its easier to forget about it so you can start to build up your savings for other large expenses. Financial Service Authority: The Financial Services Authority (FSA) is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury, although it operates independently of government. It is structured as a company limited by guarantee and is funded entirely by fees charged to the financial services industry.[1][2] Its main office is based in Canary Wharf, London, with another office in Edinburgh. When acting as the competent authority for listing of shares on a stock exchange, it is referred to as the UK Listing Authority (UKLA),[3] and maintains the Official list. ompanies involved in any of the following activities must be regulated by the FSA. Accepting deposits Issuing e-money Effecting or carrying out contracts of insurance as principal Dealing in investments (as principal or agent) Arranging deals in investments Arranging regulated mortgage contracts[8] Arranging regulated home reversion plans Arranging regulated home purchase plans Managing investments Assisting in the administration and performance of a contract of insurance[9] Safeguarding and administering investments Sending dematerialised instructions Establishing etc. collective investment schemes Establishing etc. personal pension schemes Establishing etc. stakeholder pension schemes Advising on investments Advising on regulated mortgage contracts Advising on regulated home reversion plans Advising on regulated home purchase plans Lloyd's market activities Entering into and administering a funeral plan Entering into and administering a regulated mortgage contract Entering into and administering a home reversion plan Entering into and administering a home purchase plan Agreeing to do most of the above activities

Overdraft: ts important to understand that checking accounts can be overdrawn if the accountholder is not careful. The fee itself will vary; however, the average charge is about $30. In most cases, this fee is per item that overdraws your accountregardless of the amount. So, if you have four items that come through and overdraw your account, thats $120. You do have some options. First and foremost, it is important that you keep a register or some other means of efficiently tracking your balance. I agree that charging $30 for an item that overdrew you $2 is ridiculous, but if you didnt spend more than you had, you wouldnt get the fee in the first place. Take some responsibility and keep track of your finances. Second, you can get overdraft protection. True overdraft protection will come in one of three forms: savings, line of credit, or a credit card. If you have overdraft protection linked to your account, the you avoid paying the $30+ in fees. Some institutions may still charge a nominal fee for the transfer from your protection account (usually $2-3), but that $8-12 is much better than paying for $120. Ill be going over these three forms of overdraft protection in more detail in an upcoming post. Finally, you should have the option to opt-out of overdrawing the account. What this means is that you bank can switch off the feature on your debit card that allows you to go over what you have in your account, and your card will be declined at the time of purchase. The one caveat to this is that pending transactions will still overdraw the account. For example, if you use your debit card as credit and sign for it, the purchase clearing your account is dependent on the merchant and when they batch their credit card items. It could take several days to clear the account. If you use your card in the meantime, forgetting to subtract out the first purchase and spend more than what you have available, that pending charge will clear and overdraw you. Again, be careful and keep track of your balances.

Q. Structure of master and sub account structure that a corporation can open. Master/Sub-accounts I. Introduction The Securities and Exchange Commissions (Commission) National Exam Program (NEP) has identified the master/sub-account trading model as a vehicle that could be used to further violations of the federal securities laws as well as other laws and regulations. In particular, misuse of the account structure raises significant regulatory concerns with respect to: (i) money laundering, (ii) insider trading, (iii) market manipulation, (iv) account intrusions, (v) information security, (vi) unregistered broker-dealer activity, and (vii) and excessive leverage (e.g., inadequate minimum equity for pattern day traders).2 Generally, in the master/sub-account trading model, a top-level customer opens an account with a registered broker-dealer (the master account) that permits the customer to have subordinate accounts for different trading activities (sub-account). In many, if not most, instances, the customer opening the master account is a limited liability company (LLC), limited liability partnership (LLP) or similar legal entity or another broker-dealer with numerous other persons trading through the master account (traders). The master account will usually be subdivided into subunits for the use of individual traders or groups of traders (sub-accounts). In some instances, these sub-accounts are further divided to such an extent that the master account customer and the The master/sub-account structure creates potential risks of noncompliance with legal requirements. One of the most significant risks associated with these arrangements is that, many times, the registered broker-dealer obtains and maintains information only with respect to its customer, the owner of the master account (i.e., the LLC or LLP). As mentioned above, because sub-accounts may be further divided, the broker-dealer may not know who is utilizing its MPID and trading in the sub-accounts. This lack of information may expose the registered broker-dealer to legal and reputational risks. The Market Access Rule is intended in part to address these risks by requiring broker-dealers to establish, document and

maintain a system of risk management controls and supervisory procedures that are reasonably designed, among other things, to ensure compliance with all regulatory requirements that are applicable in connection with market access.8 Identified below are certain risks associated with the master/sub-account trading model. Failing to reasonably address these risks could place the broker-dealer in violation of the federal securities laws and rules thereunder, including the Market Access Rule, as well as applicable SRO rules. Money Laundering, Terrorist Financing and Other Illicit Activity The Bank Secrecy Act (BSA),9 initially adopted in 1970, establishes the basic framework for anti-money laundering (AML) obligations imposed on financial institutions.10 The BSA, as amended, is intended to facilitate the prevention, detection, and prosecution of money laundering, terrorist financing, and other financial crimes. Among other things, the BSA requires broker-dealers to: (i) establish and implement an effective AML program,11 (ii) establish a Customer Identification Program (CIP),12 and (iii) monitor, detect and file reports of suspicious activity (the SAR Requirement).13 Moreover, Exchange Act Rule 17a-8 requires broker-dealers to comply with the reporting, recordkeeping and record retention requirements in regulations under the BSA.14 What is cash credit? With many of the advantages of a standard line of credit, cash credit is the issuance of a short term cash loan to a business. A cash loan of this type if often utilized to meet the expenses associated with a specific task or project, with repayment expected within a period of one year or less. Successfully receiving cash credit and paying off the loan within terms can open the way for the business to be extended a more liberal line of credit for future use.
Cash credit works in a manner that is very similar to that of a line of credit. The difference is that cash credit establishes a cash account with the lender institution that can be drawn upon by the debtor. This is different from a conventional loan, in that the debtor does not have to receive the entire amount of the loan at one time. Cash credit is also different from a line of credit, as the amount of resources extended are pre-approved and the repayment schedule is the same whether the debtor is actively using the cash credit or not.

Cash credit is typically a line of credit that a business or individual has access to when and if they need it. As is the case with any financial product, there are pros and cons of using this type of credit, including ease of access, having it as a backup plan, the interest rate and using the money for the wrong reasons. One of the primary pros of cash credit is how easy it is to access the money when it is needed. It is especially advantageous when the money is needed only for a short term cash loan. The cash credit line is easy to access, so there is not a need to apply for a new loan or worry about how to come up with the cash to pay for an unexpected expense. Another pro to obtaining this type of credit is that there usually are not any upfront costs to establishing the credit account. Upfront costs may not be necessary if the business owner puts up a piece of property up as collateral for the loan, such as a home or a car. Without collateral to obtain the cash credit line, there may be upfront costs or a higher interest rate. Difference between debit and credit interest Debit cards and credit cards are accepted at the same places. Debit cards all carry the symbol of one of the major types of credit cards on them, and can be used anywhere that credit cards are accepted. They both offer convenience. The fundamental difference between a debit card and a credit card account is where the cards pull the money. A debit card takes it from you banking account and a credit card charges it to your line of credit. Debit cards offer the convenience of a credit but work in a different way. Debit cards draw money directly from your checking account when you make the purchase. They do this by placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their bank and it is transferred to the merchants account. It can take a few days for this to happen, and the hold may drop off before the

transaction goes through. For this reason it is important to keep a running balance of your checking account to make sure you do not accidentally overdraw your account. It is possible to do that with a debit card. A credit card is a card that allows you to borrow money in small amounts at local merchants. You use the card to make your basic transactions. The credit card company then charges you interest on your purchases, though there is generally a grace period of approximately thirty days before interest is charged if you do not carry your balance over from month to month. In the past many people felt that you needed a credit card to complete certain transactions such as rent a car or to purchase items online. They also felt that it was safer and easier to travel with a credit card rather than carrying cash or trying to use your checkbook. However debit cards offer the same convenience without making you borrow the money to complete the transactions. Q. Intercompany loan domain A loan in which both the lender and the borrower are divisions of the same corporation. Such a loan may have tax consequences, depending on the jurisdiction. Yield curve: In finance, the yield curve is a curve showing several yields or interest rates across different contract lengths (2 month, 2 year, 20 year, etc...) for a similar debt contract. The curve shows the relation between the (level of) interest rate (or cost of borrowing) and the time to maturity, known as the "term", of the debt for a given borrower in a given currency. For example, the U.S. dollar interest rates paid on U.S. Treasury securities for various maturities are closely watched by many traders, and are commonly plotted on a graph such as the one on the right which is informally called "the yield curve." More formal mathematical descriptions of this relation are often called the term structure of interest rates. The shape of the yield curve indicates the cumulative priorities of all lenders relative to a particular borrower (such as the US Treasury or the Treasury of Japan or Greece). Usually, lenders are concerned about a potential default (or rising rates of inflation), so then they will only offer long-term loans for higher interest rates than they offer for shorter-term loans. However, rarely, when lenders are seeking long-term debt contracts more aggressively than short-term debt contracts, the yield curve "inverts," with interest rates (yields) being lower and lower for each longer periods of repayment in order for the lenders to attract long-term borrowing. See [1] The yield of a debt instrument is the overall rate of return available on the investment. In general the percentage per year that can be earned is dependent on the length of time that the money is invested. For example, a bank may offer a "savings rate" higher than the normal checking account rate if the customer is prepared to leave money untouched for five years. Investing for a period of time t gives a yield Y(t). This function Y is called the yield curve, and it is often, but not always, an increasing function of t. Yield curves are used by fixed income analysts, who analyze bonds and related securities, to understand conditions in financial markets and to seek trading opportunities. Economists use the curves to understand economic conditions. The yield curve function Y is actually only known with certainty for a few specific maturity dates, while the other maturities are calculated by interpolation (see Construction of the full yield curve from market data below).