23. Typical features of the Eurobond

A Eurobond is a bond issued offshore by governments or corporates denominated in a currency other than that of the issuer’s country. Eurobonds are usually long-term debt instruments.

Eurobonds are typically denominated in US Dollars (USD). Euro, Japanese Yen, Swiss Francs and other currency denominated Eurobonds are also available.

Features and Advantages

Typical maturities are 5-30 years.

The coupon interest may be fixed or floating. Payments may be annual or semi-annual.

Although issued as long term, Eurobonds may be sold before maturity; the market conditions at the date of cash-in are taken the as basis for the sale price. Higher than expected returns can be obtained in a market where interest rates decline, but the reverse is also possible.

When sold, the bonds are made out to the bearer; however, physical delivery to the buyer in reality is not possible.

The difference between buy-sell quotations varies according to the liquidity and transaction volume of the bond.

The standard value date is the transaction date plus three business days.

24. Commercial banks

Commercial bank is a financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit.

Commercial banks engage in the following activities:

• processing of payments, internet banking

• issuing bank drafts and bank cheques

• accepting money on term deposit

• lending money by overdraft, installment loan, or other means

• providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures

• safekeeping of documents & other items in safe deposit boxes

• cash management and treasury

• merchant banking and private equity financing

• traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have aninvestment bank arm that is involved in the mentioned activities

Commercial banks perform various primary functions:

• Commercial banks accept various types of deposits from public especially from its clients, including saving account deposits, recurring account deposits, and fixed deposits. These deposits are payable after a certain time period

• Commercial banks provide loans and advances of various forms, including an overdraft facility, cash credit, bill discounting, money at call etc. They also give demand and demand and term loans to all types of clients against proper security.

• Credit creation is most significant function of commercial banks. While sanctioning a loan to a customer, they do not provide cash to the borrower. Instead, they open a deposit account from which the borrower can withdraw. In other words, while sanctioning a loan, they automatically create deposits, known as a credit creation from commercial banks.