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Functions of a Commercial Bank



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Functions of a Commercial Bank


The functions of commercial banks depend on the nature of the task as most of the required financial tasks for the general public as well as the businesses are done by these banks. Starting from the deposit, to offering the services as an agent of the insurance firm, the commercial banks now do all such tasks.
The banks usually offer services to other financial organizations in return for a commission. Therefore, it can be stated that commercial banks engage in all kinds of financial functions that offer them a profit in return.
The functions of commercial banks are divided into two categories - Primary and Secondary functions.

Primary Functions


  • Accepting deposits − Commercial banks take deposits of money from the general public. These deposits are divided into three types.

  • Savings Deposit − Savings deposits allow the general public to credit funds towards their accounts. However, there is a certain limit on deposits in the case of savings deposits. Savings deposits are ideal for individuals with a fixed income and are utilized to create savings over time.

  • Current Deposits − Current deposits are usually meant for business accounts and they allow the account holder to withdraw and deposit money whenever needed. In some cases, current accounts also offer overdrafts until a pre-specified limit to individuals and businesses.

  • Fixed deposit − Fixed deposits are deposits of the lump sum amount and they come with a predetermined lock-in period. The funds are deposited for a specific duration in the case of fixed deposits.

  • Providing loans and advances −Providing loans and advances is one of the main functions of commercial banks. Loans are provided to both organizations and individuals, and profit is earned from the interest on the loans.

Generally, banks retain a small reserve of all the money they have as deposits for their expenses and offer the remaining funds to customers as various types of short and long-term loans.

  • Credit Cash − When loans are sanctioned, the customers are not provided with liquid cash. First, a bank account is created for the customer, and then the money is transferred to that account. This process allows the bank to create money through a line of credit.

Secondary Functions

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