Q: - What is a Bank?
Ans: In simple words, we can say that Bank is a financial institution that undertakes the banking activity i.e.it accepts deposits and then lends the same to earn certain profit.
The features of a Bank are:
• A Bank is a profit seeking commercial enterprises.
• It deals in money, i.e., it accepts deposits from the public and advances loans to the needy borrowers.
• It deals with credit. It creates credit for the purposes of
lending money.
• The deposits made with the bank are repayable on demand and can be withdrawn by the depositor by means of any instruments whether a cheque or otherwise.
Q: -What are the primary functions of a Bank?
Ans: The primary functions of a Bank are:
•Acceptance of Deposits: It is the most important function of a bank. According to this function, the commercial bank accepts deposits from different individuals and organizations. The bank accepts deposits from them and provides all securities to them.
•Making loans and advances: The second important function of bank is advancing loan. The commercial banks earn interest by lending money.
•Investment of funds: Besides loan and advances, banks also invest a part of its funds in govt. and industrial securities. Banks purchases both govt. and industrial securities like govt. bills, share, debentures, etc from their market.
•Credit Creations: The banks create credit. When a bank advances a loan, it does not give cash to the borrower. It opens
an account in the name of the borrower. The borrower is allowed
to withdraw money by cheque whenever he needs. This is known
as Credit Creation.
Q: - What are the Secondary functions of a bank?
Ans: The secondary functions of a bank are:
•Agency functions: These functions are performed by the banker for its own customer. For these services, the bank charges certain commission from its customers. These functions
are: -
•Remittance of funds.
•Collection and payment of credit instruments.
•Execution of standing orders.
