Extra Learning

Li, Jialong

2011-5-10

Contents

Banking System Financial Policy Financial Control International Settlement Financial Markets Official Record of International Business

Banking System

1. Functions of Central Bank (the Bank of England) (1A)

1) Central bank

2) Bankers’ bank

3) Lender of last resort

4) Market intervention

5) International role

6) Domestic supervisory responsibilities

Banking System

2. The Federal Reserve System (U.S.) The three benefits of member-banks in the

Federal Reserve System (1B)

1) Check clearance

2) Electronic Fund Transfer

3) Borrowing Ability

Financial Policy

1. FISCAL POLICY

Government revenue ---- Tax and tariff (income, change tax’s rate)

Government expenditure ---- Government Budget (budget deficit)

Government borrowing ---- Government Bonds

Financial Policy

2. MONETARY POLICY

(1) Discount Rate (Interest Rate) (2C): The equation or formula: Simple interest: I = P x R x T (Principal amount, interest rate a

nd time usually year) Less than a year: I = P x R x Days/360 Compound interest: FT = P (1+R)T ( F—the future total repay

ment value of the loan)(2) Reserve Rate (2A) : the multiplier theory (Total $ = Initial $ x 1/Fractional Reserve

Rate or Requirement)(3) Money Creation (Direct Money Supply) (2B)

Monetary Aggregates (The Three Ms)

M1 M2 M3

Main Items Currency, Coin Demand deposit

(Checking account)

Besides M1Savings and small

time deposits,MMDA, MMMFShort-term money

market assets

Besides M1 and M2

Financial assets and

instrumentsJumbo

certificates of deposit

Main Purpose Transaction orMedium of exchange

Mainly savingSecondly

transaction

Investment

Cashing Ability

Immediately Short-term Long-term

Review Questions

How do the government budget deficit, and the adjustment of discount rate, reserve rate and money supply influence respectively the inflation, unemployment and general economic activity?

Financial Control

Financial Statements

Income Statement

Balance Sheet

Cash Flow Statement

Statement of Changes in Equity

The Bookkeeping Bank Deposits

Summary of Financial Statements

Items What to tell?Time

descriptionMetaphor

Investment ways

Balance sheet Lists of assets, liabilities, and owner’s equity

Specific date (end of a month or a year)

A snapshot

A pool with some water

Entrepreneur

Income statement Summary of the

revenues and expenses

Specific period (a month or a year)

A moving picture

Change of water amount in the pool

Shareholder or stockholder

Statement of cash flows

State of inflow and outflow of cash

Specific period (a month or a year)

Intake and outlet of the water

Loaner or lender

Statement of owner’s equity

Summary of changes in owner’s equity

Specific period (a month or a year)

The money get or made from the water

Opportunistic stockholder

EXAMPLE OF CHART

OF ACCOUNTS

(Accounts

List)

Chart of Accounts

Chart of Accounts

Chart of Accounts

The Classification of Ledge Accounts

The Classification of Ledge Accounts

Double Entry Principle

Assets (资产 ), Cost (成本 )

Debit (＋ ) Cash Credit (－ )

Beginning: 100

1000 (＋ )

Total: 1000

600 (－ )

Total: 600

End: 500

Double Entry Principle

Liabilities & Owners Equity (负债与所有者权益 )

Debit (－ ) Accounts Payable Credit (＋ )

Beginning: 1000

500

Total: 500

2000

Total: 3000

End: 2500

Double Entry Principle

Revenue (收入 )

Debit (－ ) Sales Credit (＋ )

5002000

Total: 500 Total: 2000

Double Entry Principle

Expenses (费用 )

Debit (＋ ) Administration Credit (－ )

2000500

Total: 2000 Total: 500

Double Entry Principle

Judgement of Debit & Credit

AssetsCostsExpenses

Debit (＋ ) Credit (－ )

CASH

Liabilities Owners EquityRevenue

Credit (＋ ) Debit (－ )

Double Entry Cases

Double Entry Cases

Double Entry Cases

Double Entry Cases

Ledger Entries & Proper Journal

Ledger Entries & Proper Journal

Trial Balance

Trial Balance

Trial Balance

Trial Balance

Trial Balance

International Settlement

I. The Means Of Payment

Mainly: cash and bills

A. Cash Or Currency

1. Three kinds of currencies for payments

1) Home currency

2) The currency of the other country concerned

3) Foreign currencies: hard currency, soft currency

2. Main foreign currencies used in our foreign trade

International SettlementI. The Means Of Payment

Mainly: cash and billsB. Bills 1. Bill of Exchange (or Draft) 1) Variety: a. Commercial bill (draft) and Banker’s Bill (Draft) b. Clean Bill and Documentary Bill c. Sight Bill and Time Bill Commercial Acceptance Bill and Banker’s Acceptance Bill

2) Circulation of draft a. To draw (issue) b. Presentation c. Acceptance d. Payment e. Endorsement f. Dishonor: protest

Sample Draft

Sample Draft

International Settlement

I. The Means Of Payment

Mainly: cash and bills

B. Bills

2. Promissory note

1) General promissory note

2) Banker’s promissory note (cashier’s order)

3. Cheque (check)

1) Guaranteed check

2) Crossed check

International Settlement

II. Payment Ways A. Remittance1. Four parties concerned: Remitter (Payer), Payee (Beneficiary), Remitting

Bank, Paying Bank2. Two relationship: Contractual relation between Remitter and Payer,

Agent relation between Remitting Bank and Paying Bank

3. Variety: 1) M/T ---- Mail Transfer 2) T/T ---- Telegraphic Transfer 3) D/D ---- Demand draft (or clear payment, or

simple payment)

International Settlement

II. Payment Ways B. Collection 1. Variety: 1) Draft-collection (clean collection): a. at sight; b. after sight 2) Documentary collection a. D/P ---- Documents against payment a) D/P at sight vs. CAD ---- Cash against documents b) D/P after sight & T/R ---- Trust Receipt D/P, T/R b. D/A ---- Document against Acceptance 2. Collection Procedure 3. Four parties concerned and four relations 1) Principal 2) Remitting Bank 3) Collecting Bank 4) Drawee (Payer)

Procedure Of A Documentary Collection

International Settlement

II. Payment Ways

C. L/C ---- Letter of Credit

1. The six concerned parties and their relations

1) Applicant or opener

2) Opening Bank or Issuing Bank

3) Advising Bank or Notifying Bank

4) Beneficiary

5) Negotiating Bank

6) Paying bank, Drawee Bank

2. Payment procedure

Procedure Of Settlement For Letter Of Credit

International SettlementC. L/C ---- Letter of Credit 3. Variety

Revocable L/C and Irrevocable L/C Confirmed L/C and Unconfirmed L/C Sight L/C and Usance L/C

T/T Reimbursement Clause Banker’s Acceptance L/C vs. Deferred Payment L/C Usance Credit Payable at sight (Buyer’s Usance L/C)

Negotiation L/C and Sight Payment L/C Transferable L/C and Non-transferable L/C Revolving L/C Reciprocal L/C Back to Back L/C Anticipatory L/C or Red Clause L/C Documentary L/C and Standby L/C

Vs. L/G ---- Letter of Guarantee, or Bank Guarantee

International Settlement

Question:

Why will the seller take more risks by using COLLECTION than by using LETTER OF CREDIT?

Financial Markets

Currency Exchange

Official Record of International Business

Balance of Payments

The End of Extra Learning