Banking

1. What is most used form of bank?

The name ‘bank’ is usually used in the sense of commercial bank

2. From where do the word bank derived?

The word ‘bank’ seems to have originated from the Germanic world ‘banck’
which means a joint stock fund or heap. It is possible that the word has
also been derived from the French word ‘banque’ and the Italian word
‘banco’. The Italian word ‘banco’ refers to a bench at which the money
changers or mediaeval bankers used to change one kind of money into another
and transact their banking business.

3. What was the public banking institution?

The first public banking institution was The Bank of Venice, founded in
1157. The Bank of Barcelona and the bank of Genoa were established in 1401
and 1407 respectively.

4. What are the early stages of banks types of institutions?

i) The merchant banker, who was primarily a trader. He accepted customer’s
money and kept it under safe custody.

ii) The money lender, who lent his surplus money to the needy persons on
deriving some interest payment.

iii) The gold smith, who accepted the valuables like gold and diamond of
the customers and kept it under his safe custody. It will be returned to
the customer on demand and interest will be collected for that.

5. What are the various definition of banks?

· Dr.L. Herber and L. Hart define the banker, “as one who in the ordinary
course of business honours cheques drawn upon him by persons from and for
whom he receives money on current accounts”.

· Chamber’s Twentieth century Dictionary defines a bank as an, “institution
for the keeping, lending and exchanging etc. of money”.

· According to Crowther, “The banker’s business is to take the debts of
other people to offer his own in exchange, and thereby create money”.

· Prof. Kent defines a bank as, “an organisation whose principal operations
are concerned with the accumulation of the temporarily idle money of the
general public for the purpose of advancing to others for expenditure”.

6. What are the role of bank in economic development?

1) Removing the deficiency of capital formation

2) Provision of finance and credit

3) Extension of the size of the market

4) Act as an engine of balanced regional development

5) Financing agriculture and allied activities

6) For improving the standard of living of the people

7. What is commercial bank?

A commercial bank is an institution that operates for profit

8. What is the traditional function of commercial bank?

The traditional functions of a commercial bank relate to the acceptance of
deposits from the public and provision of credit to different sectors of
the economy

9. What are the functions of commercial bank?

1. Accepting or attracting deposits

a) Savings deposits

b) Demand deposits

c) Fixed deposits

2) Advancing of loans

a) Cash credit

b) Provision of overdraft facilities

c) Discounting bills of exchange

3) Creation of money or credit

4) Other functions

a) Transfer of funds

b) Agency functions

c) General utility services

10. What is central bank?

The banking system of a country can work systematically in coordinated
manner, only if there is an apex institution to direct the activities of
the banks. Such apex institution is popularly known as ‘central bank’. The
central bank of the country is an autonomous institution, entrusted with
powers of control and supervision.

11. What is Bank of France?

The central bank of France called ‘Bank of France’ was founded in 1800.

12. What are various definition of central bank?

A central bank has been defined in terms of its functions. The following
are some of the definitions given by economists.

According to Smith, “the primary definition of central banking is a banking
system in which a single bank has either complete control or a residuary
monopoly of note issue”.

H.A. Shaw defines a central bank, “as a bank which controls credit”. In the
words of Hawtrey “a central bank is that which is the lender of the last
resort”.

According to Samuelson, “a central bank is a bank of bankers. Its duty is
to control the monetary base and through control of high-powered money to
control the community’s supply of money.

13. What are the difference between central bank and commercial bank?

1. The central bank is the apex institution of the monetary and banking
system of the country. A commercial bank is only a constituent unit of the
banking system and a subordinate to the central bank.

2. While the central bank possesses the monopoly of note-issue, commercial
banks do not have this right.

3. The central bank is not a profit making institution. Its aim is to
promote the general economic policy of the government. But, the primary
objective of commercial banks is to earn profit for their shareholders.

4. The central bank maintains the foreign exchange reserves of the
country.The commercial banks only deal in foreign exchange under the
directions of the central bank.

5. The central bank is an organ of the government and acts as its banker
and the financial advisor, whereas commercial banks act as advisors and
bankers to the general public only.

14. What are the functions of central bank?

1. Regulator of currency

i) Ensuring uniformity of the notes issued and a proper control over the
supply of money can be exercised.

ii) Bring stability in the monetary system and creates confidence among the
public.

iii) Government is able to earn profits from printing currencies.

2. Banker, Agent and Adviser to the Government

3. Custodian of cash Reserves of commercial banks

4. Custodian and Management of Foreign Exchange reserves

5. Lender of the last resort

6. Clearing Function

7. Controller of credit

15. What are the quantitative credit control methods?

1) Bank Rate (or) Discount Rate Policy

2) Open Market Operations

3) Variable Reserve Ratio

16. What are qualitative credit control method?

a) Margin Requirements

b) Regulation of consumer credit

c) Rationing of Credit

d) Direct Action

e) Moral suasion

f) Publicity

17. What are the commercial banks in India?

a) The State Bank of India

b) The seven associated banks of State Bank of India.

c) Twenty nationalized Banks.

d) Indian joint stock commercial banks

e) Foreign banks functioning in India

f) Regional Rural Banks.

18. What is the need of nationalization of bank?

The most important benefit of nationalization of commercial banks was the
achievement of homogeneity and strength as well as cohesion in the banking
structure of India, affording a better environment for effectively
implementing banking and monetary policies of the government.