class-1
BANKING
- COMMERCIAL BANKS
- FUNCTIONS OF C.B.
- MONEY CREATION / CREDIT CREATION BY C.B.
- CENTRAL BANK
- FUNCTIONS OF CENTRAL BANK
- DIFFERENCE B/W COMMERCIAL BANK AND CENTRAL BANK.
- COMMERCIAL BANKS:
- Are those institutions who performs 3 functions/services & earn profit:
- Accepting deposits.
- Granting loans.
- Money Creation/Credit Creation.
FUNCTIONS – COMMERCIAL BANK
- PRIMARY FUNCTIONS
- SECONDARY FUNCTIONS
FUNCTIONS -COMMERCIAL BANK | |||
PRIMARY | SECONDARY | ||
ACCEPTING DEPOSITS | ADVANCING LOANS | ||
DEMAND 1.CURRENT ACCOUNT DEPOSITS 2. SAVING ACCOUNT DEPOSITS |
TIME
1. FIXED ACCOUNT DEPOSITS 2.RECURRING ACCOUNT DEPOSITS |
Types of loan:
i. CASH CREDT Against current assets-Share, stock, bond. Credit limit sanction. Interest only on withdrawn amt. ii. DEMANDLOAN Bank can recall any time. Ex. OD facility. III.SHORT-TERM LOAN Given as personal loan against collateral security.
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Keywords:
- Borrowing rate: at which Commercial bank receive money from customers.
- Lending rate: at which Commercial bank provide money for customers/investors.
- Banking system: Financial institution when receives deposit and provide loan.
- Post office provide only deposit facility; are not banking institution.
- QUESTIONS: BASED ON COMMERCIAL BANK
Q.1. What are the commercial bank? and its functions? (2+1 mark)
Q.2: Differentiate b/w: (3 marks each)
- Demand and time deposit
- Current and saving deposit
- Fixed and recurring deposit
Q.3: What kind of primary functions performed by any commercial bank? Explain in details? (6 mark)
Q.4: What kind of secondary functions performed by any commercial bank? Explain in details? (6 mark)
MONEY CREATION OR CREDIT CREATION
It’s a function of commercial banks through which they provide loan more then initial deposit.
To understand this concept two assumptions:
- Entire commercial banking system are one unit.
- Whole money in economy is in circular through banks.
- LRR: It is legally compulsory for the banks to keep a certain minimum fraction of their deposits as reserves.
- What: ?
- Who define: ?
- WHY LRR: ?