Question
In: Economics
What are the three basic money and credit functions of Commercial Banks?
What are the three basic money and credit functions of Commercial Banks?
Solutions
Expert Solution
Accepting Deposits- Commercial banks accept deposits of
individuals , companies and other organizations in the form
of:
Savings deposits – The commercial bank accepts small deposits from
households or individuals with a view to promoting economic
savings.
Time deposits – The bank accepts deposits for a fixed period of
time and bears a higher interest rate than savings deposits.
Current Deposits – There is no interest on these accounts.
Additionally, most current accounts give overdrafts up to a default
limit. Therefore, the bank undertakes the duty to pay all cheques
against deposits subject to the availability of sufficient funds in
the account.
Lending of Funds- Another significant practice is to lend funds to clients in the form of loans and advances, cash credit, overdraft and bill discounts, etc. Loans are loans that a bank offers to its customers for a defined period and at an negotiated interest rate, with or without insurance. Furthermore, the bank credits the balance of the loan in the account of the customers which he withdraws according to his needs.
Bank as an Agent- A bank acts as an agent for various services to its customers such as: Collecting bills, draft papers, checks etc. Paying premium insurance, rent, credit installments, etc. Working in the stock exchange as a representative of a customer to buy or redeem securities etc. Acting as a customer's estate executor, administrator or trustee In addition, filing of income tax returns, requesting tax refunds etc.
General Utility Services- Commercial banks offer several general utility services, such as: Problem of cheques for travelers Provides lockers to hold valuables in safe custody In addition, issuing debit and credit cards etc.
Rahul Sunny answered 2 years agoRelated Solutions
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