Banking Accounting

All the three existing types of markets – money markets, share (stock) markets and commodity markets arc in close connection with the banking sphere.

Nowadays one can speak of a global banking system although banks, of course, continue to play their local, more traditional role: opening and managing accounts, giving loans, and fulfilling all kinds of other operation to assist agriculture, industry and commerce.

Traditional instruments of international bank payments are letters of credit (discussed in Chapter XV) and documentary collection bills.

Documentary collection bills are presented to the importer's bank or its correspondent by the exporters together with all shipping, insurance and other documents specified in the contract. If the documents are in order the importers instruct their bank to pay and then collect the shipping documents.

The process of payment from bank to bank has been greatly quickened by the introduction of SWIFT system (Society for Worldwide International Financial Telecommunication). This network nowadays covers thousands of banks in about a hundred countries. A message to pay money sent through the computers of SWIFT system can be received in the matter of seconds.

The role of correspondent banks is nowadays also permanently growing. A correspondent bank is the one which carries the deposit balance of another bank situated in another city of the country. This exchange of services between banks greatly facilitates international payments.

Some of the basic terminology connected with banking includes interest rates (percentages that a bank earns by giving out loans), deposits (i.e. money placed in a bank), remittances (i.e. transfer of money), etc.

Interest rates and bank rates, naturally, differ from country to country, from bank to bank, and from client to client, but one of the most influential indices here is LIBOR (London Interbank Offered Rate).

One of relatively new developments in banking is the industry of plastic {credit) cards. By issuing credit cards to individual clients and thus encouraging them to spend money, the banks tap the almost inexhaustible resources of the consumer sector. This system was pioneered by the USA where plastic cards have proved a goldmine for banks, but now credit cards are issued by virtually all big banks around the world.