Ba financial Essay Example | Topics and Well Written Essays - 1750 words

Ba financial - Essay Example Liability products consist of checking and savings account, fixed deposits, certificate of deposits, etc. These products are by nature liabilities for banks as a result of which banks are obliged to pay interest to the customers for all these products. Except for checking accounts all other liability products provide interest to the customers. In short liability products are intended to raise fund for providing asset products. Asset products: Asset products are the revenue earning products for the banks because such products are by nature, assets for the banks. The most common asset products offered by banks are loans (personal and business), credit cards and mortgages. Among these, loans are the most revenue generating asset products of the banks. Banks use the funds raised through their liability products for providing liability products. Therefore, both asset and liability products are equally important for commercial banks. Two liability and asset products that will be discussed further in this essay are Savings account, Certificate of deposits, Mortgage loans and Credit cards. Savings account and Certificate of deposits: Savings account and Certificate of Deposits (CD) are the two main liability products of commercial banks. Savings account provides modest interest rates to the account holders of the bank. It is a very liquid form of asset to the customers as they provide withdrawal of amount at any point of time. Savings account is the primary source for commercial banks to raise money for lending. For the customers it provides a liquid asset with modest interest. A certificate of deposit provides higher interest rates than that of a savings account. CD is a promissory note issued by a bank that entitles the bearer to receive interest. Unlike savings account there is restriction on the withdrawal of funds from CD until the end of the term. For the customers, CD’s provide a safe and high interest bearing investment though it is less liquid. For the banks it provides a source of fund for longer period as early withdrawals by the customers are not entertained. Mortgage loans and credit cards: Mortgage loan is a secured loan provided by the banks to the customers. Such loans are secured by real assets of the customers. Therefore, for the banks the risk of loss is limited compared to usual unsecured loans. Mortgage loans usually bear less interest rate than unsecured loans. Such loans are mostly used by customer for acquiring properties, (residential and commercial). Credit card is growing to be one of the most revenue generating products for commercial banks. Credit card provides the customers with a line of credit which can be used by them to purchase goods or services. There is a credit limit attached to the card beyond which the customers are restricted to use. It provides the banks with revenue from annual card fee and interest on the purchases of not repaid within the billing period. Change in market interest rates and impac t on Asset products Change in the market interest rates will have a direct impact on the products of commercial banks. â€Å"A bank’s interest rate risk reflects the extend to which its financial condition is affected by changes in market interest rates.† (English, 2002) An increase in the market interest rates will have an adverse impact on the asset products of banks. Some of the main asset products of the banks are personal and business