Banking-Type Institutions. Exercise 1.

A. The principal functions and services offered by banks and many of their financial-service competitors include these: (1) lending and investing money (the credit function); (2) making payments on behalf of customers to facilitate their purchases of goods and services (the payments function); (3) managing and protecting customers’ cash and other forms of customer property (the cash management, risk management, and trust functions); and (4) assisting customers in raising new funds and investing those funds profitably (through brokerage, investment banking, and savings functions).

B. Cash is popular for many types of payments because it is readily accepted, convenient, and anonymous. Because most ofthese transactions have a low value, cash transactions account for only 0,4 percent ofthe total value ofall payments in the United States.

C. Other than cash, the paper check is the most frequently used means of payment in the United States.

A check is a draft drawn on a bank and payable on demand.
a) Cashier’s check: A cashier’s check is drawn by a bank on itself ordering itself to pay a sum certain to the depositor or to the person designated by him.
b) Certified check: A certified check is a personal check ofthe bank’s depositor which the bank has certified that depositor has such amount on deposit.
c) Bank draft: A bank draft is a check drawn by one bank upon another bank in which the first bank has money on deposit.
d) Certificate of deposit: A certificate of deposit is a written acknowledgement bya bank of receipt ofmoney and a promise to pay the holder of the certificate the amount deposited when the certificate, properly indorsed, is surrendered.

D. The two large-dollar funds transfer networks in the United States are the Fedwire service provided by the Federal Reserve Banks and the Clearing House Interbank Payments System (CHIPS) operated by the New York Clearing House Association.

Fedwire is used principally for domestic payments, while over 70 percent of CHIPS payments are dollar-denominated international payments.

E. POS systems result in a direct debit to a consumer’s account for purchases of goods or services and a credit to the merchant’s account.

Point-of-sale (POS) terminals are computer equipment in stores to allow electronic payments for goods and services.

F. Debit card is a plastic card issued by a bank to enable its customers with check accounts to pay for goods or services at certain retail outlets by using the telephone network to debit their check accounts directly.