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Money and Banking — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsMoney and Banking6 Marks
Question
Explain the functions of a commercial bank.
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Answer

Function of Commercial Bank:
The function of commercial bank divided into three categories
  1. Primary Functions: A commercial bank performs two primary functions:
  1. Accepting Deposits: Commercial bank accepts deposits from public by several kinds of account like:
  • Current account
  • Fixed deposit account
  • Saving account
  • Reccuring deposit account
  1. Providing Loans and Advances: A commercial bank provides loans and advances both for productive purpose as well as consumption (household) purpose. The commercial bank provides cash credit. Demand loans and short term loans.
  1. Secondary Functions: In addition to the primary functions. banks also perform the following secondary functions:
  1. Overdraft Facility: It refers to a facility in which a account holder is allowed to overdraw amount up to limit from his current account.
  2. Discounting Bills of Exchange: The commercial bank provides the facility of discounting bill before the date of maturity.
  1. Agency Functions: A commercial bank acts as an agent of his customer. Some of the agency functions are:
  • Transfer of funds.
  • Collection and payment of various items.
  • Purchase and sale of foreign exchange.
  • Purchase and sale of securities.
  • Act as consultant.
  • Provide locker facility.
  • Provide information and statistics data to the customers.

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