Depository Agreements

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Like GIs, most bank deposit agreement clients are retirement plans. Overall, investors indirectly buy bank deposit agreements by participating in their 401(k) or other workplace pension plans, but some financial institutions offer bank deposit agreements to individual investors. In both cases, bank deposit contracts are most often buyback and redemption investments that do not have a secondary market. They typically return more than savings accounts and government bonds, because the FDIC does not secure them and is also not backed by the confidence and solvency of the U.S. government. Instead, bank deposit contracts are secured by the creditworthiness of their banks and are still considered relatively safe (and therefore low-yielding) investments. The main risks associated with bank deposit agreements are interest rate risk and liquidity risk. If interest rates fall, there may be more investments in bank deposits than the bank can invest profitably. If interest rates rise, there may be fewer investments and more withdrawals, putting pressure on the bank to have much of the funds liquid.

Fixed-rate bank deposit agreements are also prone to inflation – for example, buying a five-year bank deposit contract eliminates the possibility of higher returns if interest rates rise during the holding period. These risks increase the overall risk of the bank itself, which is why bank supervisors assess the financing of bank deposit agreements and banking policies and practices related to the activity of bank deposit agreements. A trader or hedger who wishes to accept the actual delivery of a futures contract must first establish a long-term position and wait for a shorts supplier (seller) to send a delivery message. For gold futures, the seller agrees to deliver the gold to the buyer on the expiry date of the contract. The seller must have the metal – in this case gold – in an approved depot. This is illustrated by the implementation of comex approved electronic deposit coupons, necessary for delivery or acceptance. The three main types of deposit banks are credit unions, savings banks and commercial banks. The main source of funding for these institutions is customer deposits.

Deposits and accounts receivable are insured up to certain limits by the Federal Deposit Insurance Corporation (FDIC). Bank deposit contracts are similar to guaranteed investment contracts (GICs), except that they are granted by banks and not by insurance companies. The issuer (the bank) guarantees the investor`s return on investment and pays a fixed or variable interest rate until the end of the contract. . . .