Deposits created from different underlying transaction of bank is called derivative deposits. The prime underlying transaction includes granting credit to clients in various forms. Therefore the banks in the process of granting credit create derivative deposits. The loans sanctioned and credited to the accounts of borrowers to create new deposits. Thus, it is true to say that “deposits create loans and loans create derivative deposits.”
More from this Section
Licensing is the granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions.
- Certificate of Origin
Certificate of Origin is the certificate given by the exporter certifying the origin of either the materials or production of goods being shipped.
- Deposit Banking
Pure deposit banking has its origin in England. Banks in England were only confined to accepting deposits and lending for short periods......
- Revolving Credit
Revolving Credit is a documentary credit which, after notice of drawing against it is received by the issuing bank, the balance available for
- Credit Derivatives
Credit derivatives are financial contacts that are designed to protect a bank or other lending institutions against loss due to defaults on its loan ...
- Lease Financing
Lease Financing is an alternative arrangement of medium- and long-term loan.In Lease financing, the owner of an asset gives another person, the right to use that asset against periodical payments. The owner of the asset is known as lessor and the user is called lessee.
- Direct Deposit
Direct deposit lets the user authorize specific deposits, such as paychecks and social security checks, to his account on a regular basis.