Principles And Functions Of Banks Flashcards
What is the primary function of a commercial bank?
To provide financial services to businesses and companies
Commercial banks also ensure economic stability and sustainable growth of a country’s economy.
What are the three types of deposits accepted by commercial banks?
- Savings deposits
- Current accounts
- Term or fixed deposits
What is the difference between savings deposits and current accounts?
Savings deposits earn interest and have limited withdrawal; current accounts do not earn interest and allow unlimited withdrawals
Current account holders incur nominal fees for services rendered.
What is a term or fixed deposit?
A deposit where customers save money for a specified period, earning interest that increases with the deposit length
Withdrawals are only allowed at the end of the agreed period.
What is the significance of advancing credit facilities for commercial banks?
It accounts for the highest percentage of revenue earned annually
Banks consider the borrower’s financial status and ability to repay before advancing loans.
What is credit creation in the context of commercial banking?
The process where banks create a deposit account for borrowers instead of providing cash
This increases the money supply in circulation.
What are agency functions performed by commercial banks?
- Collecting and paying cheques
- Paying dividends and bills
- Trading shares and securities
- Providing advisory services
True or False: Merchant banks provide services to the general public.
False
Merchant banks offer services specifically for high net-worth individuals and large corporations.
What type of services do merchant banks offer?
- Underwriting services
- Loan services
- Fundraising
- Specialized advisory services
Fill in the blank: Merchant banks help clients raise capital from _______.
[domestic and international markets]
What role do merchant banks play in stock exchange transactions?
- Act as brokers
- Conduct research on equity shares
- Advise clients on buying and selling shares
What services do merchant banks provide during a public issue of companies?
- Advising on public issue size and price
- Managing application and allotment of securities
- Appointing underwriters and brokers
What types of instruments do merchant bankers deal with in the money market?
- Government Bonds
- Commercial paper
- Treasury bills
What is the primary source of funds for a commercial bank?
Money deposited by bank customers in various accounts
What is the main way commercial banks make money?
By providing loans and charging interest on them
What is a key distinction between commercial banks and merchant banks?
Commercial banks offer services to the general public, while merchant banks cater to high net-worth individuals and corporations
What is the role of commercial banks in foreign exchange?
They provide foreign exchange services for import and export businesses, subject to regulatory approval
What does a commercial bank do as a custodian?
They secure gold reserves and valuables for customers in lockers
