FMRI Management - Coursework Example

? FMRI Number) FMRI Introduction: Today, people believe that banks are more interested in strengthening their personal financial statuses, rather than maintaining good economic condition of the society. There could be many reasons behind these viewpoints of people. This report aims to highlight important long-term saving and investment products for consumers and investor of considerable increase in general level of interest along with the commercial risk involved in the interest rates. Long-term Retail Services: There are many products provided by banks and other financial intermediaries to the customers for long-term motives. Some of the prominent provisions of services include term deposit and comparable accounts, which allows consumers to make very safe and appealing investment (Padmalatha 2011). It is because a defined period of money drawl is beneficial as it returns back higher rate and it is a low risk investment compared to demand deposit. Financial intermediaries give consumers an opportunity to utilize bonds and quoted shares as currency to start up a small business (Padmalatha 2011). In addition, banks also facilitated their customers with the opportunity of invested funds through fair means under the supervision of concerned authoritative bodies. Skilled and efficient managers are responsible for the security of invested fund to ensure banks as most trustworthy organizations for the consumers. Life insurance is another important policy of financial intermediaries to serve people of the society. It is a long-term service, specifically an important financial security for family (Padmalatha 2011). It can aid a family during crucial stages of life, such as marriage, health care, or education of children. It is a vital tool of protecting family and children in financial terms. A pension policy is another very significant service for the citizens (Padmalatha 2011). It is considered a complementary plan for the public provided by employers of the organization to their employees after retirement or death. This policy allows family of an employee to receive a fix amount from the salary, through the whole life on a monthly basis. These are some of the most advantageous long-term services, provided by retail banks or non-bank financial intermediaries (Padmalatha 2011). Implications of Increased Interest Rates: Increase in interest rate pulls down inflation. However, more than investors get benefit with the increased interest rates. It is so because an increase in interest rate also increases the worth of loan. Ultimately, the worth of pension and bond fund increases. It provides an outstanding benefit to those who depends upon pension and other funds for their monthly income (Cummings 2010). This condition attracts more people towards saving funds rather than spending their money, because everyone is well aware of the facts, which can bring gain to them. Thus, during the season of higher interest rate, rate of individuals` investment increases in the banks. Moreover, in this situation risk premium is also provided, which usually gets flatten during low interest rates (Cummings 2010). In addition, not only citizens, but foreigners also tend to show their interest in investment in the state, where interest rate increases and benefits investors with high rate of returned amount. Furthermore, it has been observed that it results in stronger currency and puts higher demands of currency (Cummings 2010). As a result, countries take advantage from currencies of other states and citizens enjoy lower rate of good and products of daily use such as petrol and other food items. Additionally, in this season governmental bodies of the country buy back bond on low cost (Cummings 2010). In short, it could be said that investors look for more advantages than disadvantages of the season because it is beneficial for saving money, but not for investments. Risk to Commercial Banks: Commercial banks gain a return towards shareholder only when the organizers successfully accept and manage all possible risk in an efficient manner. This risk specifically comes forward either because of borrowers default or alterations in interest rate. Although risk of commercial banks because of high interest is relatively lower than that a bank can get because of the borrower defaults (Homer and Sylla 2005). However, with the emerging technologies and their impact on financial products of commercial banks, it has been noticed by industry expertise that ups and downs in interests rate significantly increases risk for commercial banks regarding financial conditions. In general context, alteration in interest rate usually results in decreased value or earnings for bank (Homer and Sylla 2005). More investors start investing money in banks in order to gain double profit. Thus, if managerial functions are not performed in an organized manner with care, then bank has to suffer great loss in the form of penalty (Homer and Sylla 2005). Chances of mistakes and loss increase with the increase in interest rate. Wide variety options in the season of higher interest rate exposes banks to broad spectrum impacts that are usually negative. However, interest margin of bank helps organization maintain and sustain with the ups and downs of interest rates, but still interest margin is unable to aid financial situations of banks in long term exposure to higher interest rate (Homer and Sylla 2005). This time period remain risky for banks in financial terms. Moreover, commercial banks possess much potential to deal with mortgage market, but their plans are efficient for short-term condition. Long-term alterations disturb the whole system of commercial banks (Homer and Sylla 2005). On other hand, professionals are intending to sort out such methods and alternatives to overcome the shortcoming in the policies of system and methods to deal with conditional situations in better effective manner. Conclusion: From the above discussion, it could be concluded that people should learn and understand all pros and cons of every organization before developing in mind the idea that banks and other financial intermediaries are only making their own profit and public is not enjoying equal gains. Thus, it can be clearly understood that, undoubtedly, banks make profit for their organization, but, on the other hand, such organization provides long-term and short-term plans and opportunities to the citizens as well. Reference List Cummings, J 2010, Real Estate Finance and Investment Manua, John Wiley and Sons, New Jersey, Homer, S, and R. Sylla 2005, A History of Interest Rates, John Wiley and Sons, New Jersey Padmalatha, S 2011, Management of Banking and Financial Services, Pearson Education India, New Delhi Read More