Purpose of Issue-CDs, Financial Management

Assignment Help:

Purpose of Issue

CDs benefit both issuers and investors. From the issuers (banks) point of view, CDs are issued foreseeing the advantages over conventional deposits. The motives behind issuing CDs are control over cost of funds and assured availability of funds for specific period. The banks are constrained to define an interest rate structure for their customers across the board. It is operationally difficult to offer different rates of interest for different deposits, especially with a wide network as seen on the Indian scenario. Consequently, most of the depositors will be paid the same rate of interest. However, in case of Certificates of Deposit the interest is determined on a case-to-case basis. Since the volumes are large, the rates offered on CDs are more sensitive to call rates than the rates on term deposit. It is possible to discriminate between two customers and give different rates, which is not normally possible in case of term deposits. The conventional deposits though having a fixed maturity can be withdrawn prematurely; whereas, investors have to wait till the CDs mature or approach the secondary market to sell them. Issuance of CD helps banks to maintain the market share. From the investors' point of view, CDs form a better way of deploying their short-term surplus funds. CDs offer higher yields when compared to conventional deposits, while the secondary market offers liquidity. They can be assured of interest and principal payment normally.

 


Related Discussions:- Purpose of Issue-CDs

Issuing procedure of treasury bills, Issuing Procedure of treasury bills ...

Issuing Procedure of treasury bills As discussed above, the RBI on behalf of central government, announces the auctioning of T-bills by tender notification through the press. T

Partition of investment risk, Partition of Investment Risk The expecte...

Partition of Investment Risk The expected returns and the fluctuation in returns are two factors in evaluating investments. Expected Returns While the actual returns

Leverage, evaluate the importance of leverage in financial management of a ...

evaluate the importance of leverage in financial management of a small scale company

Accounting rate of return (arr), Accounting Rate of Return (ARR): This ...

Accounting Rate of Return (ARR): This technique relies on the rate of return every project will earn over its life. It takes the help of accounting profit while calculating the

Explain difference among the discounted free cash flow model, Explain the d...

Explain the difference among the discounted free cash flow model as it is applied to the valuation of common equity and as it is applied to the valuation of whole businesses. The

Working capital cycle for a trade, Working capital cycle for a trade ...

Working capital cycle for a trade Inventories days (time inventories are held before being sold)   Plus   Trade receivables days (how long

White knight, A friendly potential acquirer sought through a goal organizat...

A friendly potential acquirer sought through a goal organization threatened by a less welcome suitor.

Explain how eurocurrency is created, Explain how Eurocurrency is created. ...

Explain how Eurocurrency is created. Answer: The center of the international money market is the Eurocurrency market. A Eurocurrency is a time deposit of money in an internationa

What are the primary reasons that companies hold cash, What are the primary...

What are the primary reasons that companies hold cash? Companies hold cash to do necessary payments to take advantage of opportunities as they arise and to cover unforeseen eme

Mr, discuss the applicability of financial management in respect to poultry...

discuss the applicability of financial management in respect to poultry farming in uganda

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd