Chapter 17, Problem 1QTD

a.

Summary Introduction

To discuss: The definition of demand deposits.

Explanation of Solution

The demand deposits are defined as the funds an individual or firm save in their bank checking accounts.

b.

Summary Introduction

To discuss: The definition of compensating balance.

Explanation of Solution

Compensating balances are defined as the minimum amount of balances held by a firm in its checking account that repay the bank for different services delivered to the firm, for example, processing the checks written by the firm. The bank moreover loans or invests these balances and subsequently creates premium income for itself.

c.

Summary Introduction

To discuss: The definition of disbursement float.

Explanation of Solution

A disbursement float or positive float happens when the firm writes the checks and, in light of the fact that of the deferrals or delays, there is an excess of bank net collected balances over the balances appeared on the company's books.

d.

Summary Introduction

To discuss: The definition of deposit float.

Explanation of Solution

A deposit float or negative float is an abundance of the balances appeared on the company's books over the bank net collected balances.

e.

Summary Introduction

To discuss: The definition of lockbox.

Explanation of Solution

A lockbox is considered as a post office box kept up by a bank to deal with customer instalments for the firm. The bank gets the instalments that is received at the post office number of times each day and stores the instalments in the company's account. The utilization of a lock box decreases mailing system, payment preparing and check clearing times.

f.

Summary Introduction

To discuss: The definition of wire transfer.

Explanation of Solution

A wire transfer is the sending of funds starting with one bank then onto the next bank by electronic means through the Federal Reserve or a private bank wire system. The wire transfers are commonly utilized in moving the funds from a firm's local bank accounts to its concentration bank account.

g.

Summary Introduction

To discuss: The definition of depository transfer.

Explanation of Solution

It is an unsigned, non- negotiable check that is utilized to move reserves between accounts at various banks. Depository transfer checks are now and then utilized in moving funds from a firm's local bank accounts to its concentration bank balance.

h.

Summary Introduction

To discuss: The definition of zero balance system.

Explanation of Solution

A zero balance system is a unified disbursement framework in which all installments are issued from "zero balance" accounts. Precisely enough funds are transferred to a zero balance account every day to cover the checks that have cleared the account on that day, thus leaving the account with a zero balance toward the day's end.

i.

Summary Introduction

To discuss: The definition of draft.

Explanation of Solution

A draft is considered as an instrument, like a check that is used for making instalments. In contrast to a check, which is payable on demand, the bank should provide the draft to the firm for acknowledgment before instalment is made. Post acknowledgment of the draft, the firm can store the funds required to cover the instalment.

j.

Summary Introduction

To discuss: The definition of automated clearinghouse.

Explanation of Solution

It is a computer-based option in contrast to a paper check collection and the clearing system. An ACH sorts check-like electronic pictures and trades electronic records of payments and receipts.