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Running head: ACCOUNTING ASSIGNMENTS
Accounting of Financial Institutions
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ACCOUNTING ASSIGNMENTS
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Accounting of Financial Institutions
Assignment 1
An intermediary refers to a third party that provides intermediation services between two
parties. In finance, it can be referred to as a financial organization that connects between the
surplus and deficit agents. Banks act as an intermediary when they consolidate deposits and then
use the funds to transform them into loans or mortgages. The ultimate goal of the financial
intermediary is to link the mortgagors to investors (Sinha, 2019). Therefore, they bring together
commercial agents who are willing to lend out their surplus funds with those that face a shortage
of funds and want to borrow. Credit unions provide liquidity and minimize risks by diversifying
savings.
Bank regulation refers to government policies that subject financial institutions to
specific guidelines to create transparency between the banking organizations and the people or
corporations with whom they transact their daily businesses. In Saudi Arabia, SAMA has been
given the mandate to sets policies that banks need to meet in terms of capital adequacy, reserves,
lending, and liquidity ratios. Also, the banking control laws permit SAMA to issue and approve
licenses of banks or even take legal action against any bank that fails to meet the rules and
regulations (Bamakhramah, 2016). SAMA approves the dividends of each bank within the
kingdom before announcements and encourages them to build extra reserves to strengthen their
capital base.
Liquid investments refer to any investment that can easily be converted to substantial
money without having a significant impact on the current value. Liquid assets comprise cash and
due from financial entities, loans, and necessary bank advancements, trading securities, fair
income value, reverse cash warranties, etc. Deposits and short term funding entails total
ACCOUNTING ASSIGNMENTS
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consumer credits i.e., current savings, long term savings, and short term borrowing such as
money market mechanisms. The implementation of the Mu...