Functions of Commercial Banks
Definition and nature of a commercial bank
The explanation of those functions
Definition of a Commercial Bank
A commercial bank is basically a financial institution that provides services such as, accepting deposits, granting loans and so much more services. There are two functions in a commercial bank. A primary function and a secondary function. Nature of a Commercial Bank
One main task for a bank is to accept deposits and give out loans. When a bank accept deposits, its considered as a liability and when they give out loans, its considered to be an asset for the bank. This id the nature of the bank. Primary Function
Primary function in a bank consists of
Acceptance of deposits.
Creation of credit.
Clearing of cheques.
Financing of foreign trade.
Remittance of funds.
Secondary function in a bank consists of
General utility services
This is a breakdown of the functions in a commercial bank.
Acceptance of deposits
Commercial bank accepts different types deposits from the public or customers. Saving deposits, fixed deposits, recurring account deposits and etc. The only reason the public deposits their money into the bank is to gain some sort of interest out of it. It all depends on the nature of the bank. If the interest rate goes higher, more customers are likely to come deposit their money in the bank. Acceptance of deposits is also a liability of the bank. Advancing loans
The commercial banks provide different types of loans to the customers who are in need of it. Loans such as, term loans, overdrafts, cash credit and etc. Giving out loans is an asset for the bank. The bank would normally charge a higher rate of interest than of their deposits, and that difference would go as a banks source of income. It is also known as spread income. Creation of credit...
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