BUSI 3405U Lecture Notes - Lecture 4: Demand Deposit, Investment Banking, Arbitrage
Document Summary
Demand deposit: payable on demand; that is, if a depositor shows up at the bank and requests payment by making a withdrawal, the bank must pay the depositor immediately. Obligation related to borrowed security: when an investment bank short sells a security, it generates cash for itself and shows the obligation to repay the loan. Capital: cushion against a drop in the value of its assets, which could force the bank into insolvency. Cash items in process of collection: suppose that a cheque written on an account at another bank is deposited in your bank and the funds for this cheque have not yet been received (collected) from the other bank. This cheque is an asset for your bank because it is a claim on other bank for funds that will be paid in a few days. Bank discovers that only 10% of the is needed as a reserve. It decides to keep reserves of or 10%
