The Importance Of Cost Of Fund

The importance of embody of fund The banks aw areness on the hail of deposits or live of funds at all timesis basically to ever identify the damage of doing business. This is dueto the dynamic composition of deposits and its volatility, which effectivelychange the aggregate cost of deposits.In comparison to a normal company set-up where the capital is normallyfixed, the cost of capital or return on equity is highly predictable anddividends is paid on yearly basis; the banks deposits guide under ones skin differentchallenges to its management.In early days, banks offer only a few products and many an(prenominal) ope yardd assingle-branch banks. Added by regulations on the deposit rate ceiling, thebanks management are rather straightforward. However, nowadays banksbecome major establishments with branches across the country and overseasoffering a classification of products and serve to their customers. And thebanks are aggressively competing to make existing depositors andattract newborn clients. Normally, banks resort to offering better services and amplyer(prenominal) kindle rank which effectively increase the cost of deposits.On the other(a) side, the banks shareholders demand higher profit and better dividend payout. The banks profit molding is projected and themanagement is minded(p) the tasks to achieve the goals.

Literally, to satisfy both the higher interest rate to depositors and higher dividend payout to shareholders, banks need to price the bestow relativelyhigh and induce in high-return investment products. But, this cannot betrue considering that the banks also struggle to compete for loan customersespec! ially for high net worth corporate customers and high-returninvestment products are quite especial(a) in the market.In summary, the cost of deposits is the key factor that determines the loanpricing and tar postulateed investment income, which because provides thebanks profit. Without a prudent cost of deposits management, the bank could expect its competitiveness. Liquidity reserves impact Liquidity reserves...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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