Question
4 - Kinds of Bank
Q.4. Explain some of the kinds of banks?
OR
How many types of banks are there? Briefly
explain each of them.
OR
Write a short note on kinds of banks.
KINDS OF
BANKS
Some important types of banks are as follows
i.
Central Banks.
This bank is of great significance in the
banking system of a country. Central Bank is considered as the Bank of
government and directly or indirectly control the activities of all the banks
operating in the country. State Bank of Pakistan is the central bank of
Pakistan.
ii.
Commercial Bank
This is another most important type of the
banking system. It is main function is to receive deposits, advance loans and
discounting of bills.
iii.
Industrial Bank
These type of banks provide loans to
industries. Generally these banks advance loans for long periods.
iv.
Agricultural Bank
The main functions of these banks is to
provide loans for long and short periods to the agriculturists. Long period
loans are used for acquisition of and improvement of land while short period
loans is used for purchasing seeds manures and for current expenditure.
v.
Exchange Bank
These banks deal in foreign currencies in
the form of bill of exchange, drafts, telegraphic transfers etc. They buy and
sell foreign currencies.
vi.
Saving Bank
Saving Banks provide incentives to people of
small means to save money. These banks provide monetary facilities to the
people.
vii.Land
Mortgage Banks
These banks are meant to provide loans to
agricultural by mortgaging their lands. An agricultural has to mortgage his his
land if he wants to take loan from this particular type of a bank.
viii.
Co-Operative Bank
Such type of banks are usually run by
co-operative societies through its members. These are non-scheduled banks. They
are meant for the benefits of the society and its members
Drafting
a Bill of Exchange
Q.19. How
does a bill of exchange is drafted?
While drafting a bill of exchange the
following are necessary.
i. STAMP
To prepare a bill of exchange in the form of
a legal document, the drawer of the bill has to pay a tax to the Government
which is accepted by issuing a stamp. The value of the stamp depends upon the
amount for which the bill has been drawn.
ii.
AMOUNT PAYABLE
The amount payable should be written
clearly. It is necessary that the amount should be written in words and
figures.
iii. DATE
The date on which the bill is being drawn or
prepare should be posted accurately. The date is usually written on the upper
side of the bill.
iv. NAME
OF THE DRAWEE
It is necessary that the name of the drawee
should be mentioned in the bill. The words ‘’OR ORDER OR BEARER’’’ indicate the
persons to whom the bill has to be paid.
v. FOR
VALUE RECEIVED
A bill of exchange is always drawn against a
certain amount or value. Therefore the words ‘’For Value Received’’’ should
always be written on the bill.
vi.
SIGNATURE OF THE DRAWEE
A bill lacking the signature of the drawer is
unacceptable and unlawful. Such type of a bill can be dishonoured. That is why
the structure of the drawer are essential.
vii. NAME
& ADDRESS OF THE DRAWEE
The closing of the bill includes the name and
address of the drawee. It is written on the left side corner of the bill.
Question
20 - Circumstances a Bill of Exchange is Dishonoured
Q.5.
Under what circumstances a bill of exchange is dishonoured
When a bill of exchange is drawn in the
favour of a specified person or firm, it is not necessary that the bill will be
accepted. Due to some complexities the drawee does not accept the bill. The
circumstances under which a bill of exchange is dishonoured are as follows.
Dishonour
By Non-Acceptance
When a bill of exchange is drawn against the
drawee and the drawee defuses to accept the same, this refused is called
dishonour by non-acceptance.
Dishonour
By Non-Payment
When the bill is presented to the drawee for
its payment, sometimes the drawee fails to pays it. This failure of the drawee
to the payment of the bill dishonours the bill by non-payment. In such a
situation the drawer of the bill holds the complete right to take lawful action
against the drawer.
Theory of
Comparative Advantage
Question
35 - Theory of Comparative Advantage
Q.5. What are the assumptions and criticism
relating to the theory of comparative advantage?
ASSUMPTIONS
OF THE THEORY
The comparative cost theory is based on the
following assumptions:
i. labour is regarded as the sole factor of
production and the cost of production only consists of labour cost.
ii. Production is subject to the law of constant
returns.
iii. Factors of production are assumed to the
perfectly modile within a country but immobile between countries.
CRITICISM
The theory of comparative cost is criticized
on the following grounds.
Assumption
of Constant Cost
The classical economists were of the opinion
that additional quantities & a commodity could be obtained with the same
expenditure of cost per unit us previously But this is not valid assumptions
lost ratios are subject to change where specialization between the two
countries has gone a pace.
Some
Static Assumptions
The comparative cost theory in a number of
static assumptions of fixed costs industrial production functions between
trading countries and fixed supply of land, labour, capital etc. It cannot be
applied 100% to the real world.
Assumption
of perfect mobility inside and immobility outside a country
This assumptions seems to be un-applicable
to todays modern world of communication and technology the development of cheap
quick and safe means of transport and communication has broken down this
immobility to a great extent.
Theory of
Comparative Costs
Q.34. Explain in detail the theory of
Comparative Costs.
INTRODUCTION
The classical theory of International trade
commonly known as the principle of comparative cost was first enunciated by
David Ricardo. The theory went through many additions improvements and
refinements at the hands of economists like Mill, Cairns & Bastable.
An individual is able to perform many tasks but
he does not perform them all. He selects that work which pays him the most. A
doctor can also do the work of a dispenser but he does not do it. The same
principle works in international trade. Considering the climatic conditions,
distribution of material resources, geographical concern etc. Every country
seems to be better suited for the production of certain articles rather than
for others to employ its resources more remuneratively it will be to the
advantages of each country as well as to the world.
THEORY
In its simplest form the theory may be
stated as, ‘’It pays countries to specialize in the production of those goods
in which they possess the greatest comparitve disadvantage.’’
EXPLANATION
Ricardo argued that two countries can gain
very well by trading even if one the countries is having an absolute advantage
in the production of both the commodities over the country. The condition is
‘’Provided the extent of absolute advantage is different in the two commodities
in question’’ i.e. the comparative advantage is greater or comparative is
lesses in respect of one good than in that of the other. In this connection we
compare not the cost of production of one commodity with the other rather we
compare the ratio between the cost of production of the two commodities
concerned in one country with the ratio of their cost of production in the
other country.
EXAMPLE
Suppose there are two countries A and B and
there are two commodities wheat and rice. Suppose a unit of labour produces 10
tons of wheat or 20 tons of rice in country A. The same unit can produce 6 tons
of wheat and 18 tons of rice in country B. According to this situation country
A is having an absolute advantage in the production of both commodities over B.
But she is at a greater comparative advantage in the production of wheat
country B is at a disadvantage in both. Commodities the comparative
disadvantage is less than case of rice. Hence the ratio would be
In A it is 10 : 20 i.e. 1 : 2
In B it is 06 : 18 i.e. 1 : 3
Therefore, A will specialize in wheat and B in
rice and international trade will become possible and profitable. This is the
law of comparative advantage or costs.
Q.33.
What are the advantages of International trade? Also discuss its disadvantages.
ADVANTAGES
OF INTERNATIONAL TRADE
Various advantages are named for the
countries entering into trade relations on a international scale such as:
A country may import things which it cannot
produce
International trade enables a country to consume
things which either cannot be produced within its borders or production may
cost very high. Therefore it becomes cost cheaper to import from other
countries through foreign trade.
Maximum
utilization of resources
International trade helps a country to utilize
its resources to the maximum limit. If a country does not takes up imports and
exports then its resources remain unexplorted. Thus it helps to eliminate the
wastage of resources.
Benefit
to consumer
Imports and exports of different countries
provide opportunities to the consumer to buy and consume those goods which
cannot be produced in their own country. They therefore get a diversity in
choices.
Reduces
trade fluctuations
By making the size of the market large with
large supplies and extensive demand international trade reduces trade
fluctuations. The prices of goods tend to remain more stable.
Utilization
of Surplus produce
International trade enables different countries
to sell their surplus products to other countries and earn foreign exchange.
Fosters
International trade
International trade fosters peace, goodwill
and mutual understanding among nations. Economic interdependence of countries
often leads to close cultural relationship and thus avoid war between them.
DISADVANTAGES
OF INTERNATIONAL TRADE
International trade does not always amount
to blessings. It has certain drawbacks also such as:
Import of
harmful goods
Foreign trade may lead to import of harmful
goods like cigarettes, drugs etc. Which may run the health of the residents of
the country. E.g. the people of China suffered greatly through opium imports.
It may exhaust resources
Internation trade leads to intensive cultivation
of land. Thus it has the operations of law of diminishing returns in
agricultural countries. It also makes a nation poor by giving too much burden
over the resources.
Over
Specialization
Over Specialization may be disasterous for a
country. A substitute may appear and ruin the economic lives of millions.
Danger of
Starvation
A country might depend for her food mainly
on foreign countries. In times of war there is a serious danger of starvation
for such countries.
One
country may gain at the expensive of Another
One of the serious drawbacks of foreign
trade is that one country may gain at the expense of other due to certain
accidental advantages. The Industrial revolution is Great Britain ruined Indian
handicrafts during the nineteenth century.
It may
lead to war
Foreign trade may lead to war different
countries compete with each other in finding out new markets and sources of raw
material for their industries and frequently come into clash. This was one of
the causes of first and second world war.
International
Trade
Q.32. Why
do International trade take place?
OR
What are the bases for international trade?
Some of the reasons that why do trade
between different countries occur are discussed under the following heads.
NATURAL
ENDOWMENTS
Differences in advantages of trade to different
countries may arise because of natural reasons like geographical and climatic
conditions. This lead to territorial division of labour and localization of
industry. This different countries specialize in the production of different
things.
HUMAN
CAPABILITIES
People in some countries are physically more
sturdy where as in others they are intellectually superior. Some have greater
skill and dexterity thus the countries. Which do not possess these qualities
try to share with them.
STOCK OF
CAPITAL
Some countries have large stock of capital
goods like U.K, U.S.A, etc. These gives an opportunity to the underdeveloped
countries or those which lack these capital goods to exchange or trade them
through the channel of distribution internationally.
SPECIALIZATION
IN PRODUCTION
A country may have a comparative cost
advantage in production in more than one commodity over other countries but
produces only one commodity for the sake of specialization. It helps in
improving the quality of production to a great extent.
Short
Notes
Q.1. Define the following
terms:
INTERNATIONAL TRADE
International trade refers to that trade that
take place between a country and a number of countries of the world. In other
words we can say that all the trading activities that take place across the
national boundaries is called International or Foreign trade. It is effect is
called balance of payments.
INTERNAL
TRADE
Internal or Domestic or inter-regional trade
is the trade between different regions in the same country. We can also say
that all the trading activities that take place within a country is called
Internal trade.
ABSOLUTE
ADVANTAGE
A country due to its most favourable
geographical conditions may have an advantage in the production of a particular
commodity over other countries. This advantage is known as absolute advantage
for that country over rest of the world. The absolute advantage results in a
regular inflow and outflow of goods which gives rise to International Trade.
COMPARATIVE
ADVANTAGE
When a country has an advantage of
production and move than one commodity it prefers to produce only one commodity
that is more advantageous for other. This advantage is calculated by comparing
the different commodities that how much they paying commodity is selected and
the country goes for specializing. This is known as comparative advantage.
Question
30 - Adverse Balance of Payments
Q.30. Explain in detail that how are adverse
balance of payments can be corrected?
METHODS OF CORRECTING AN ADVERSE BALANCE OF
PAYMENTS
Following are same of the methods adopted
for correcting and adverse balance of payments.
Improving the balance of trade through import
restrictions & measures of export promotions
Since balance of payments becomes adverse
because of excess imports over exports, so a country having such a problem must
try to check imports either by total prohibition or by levying import duties so
by a quota system. Another method may be import substitution i.e. trying to
produce in the country what it currently imports. Exports can be stimulated by
measures of export promotion granting subsidies or other concessions to
industrialists and exports.
Depreciation
of the currency
If a country depreciates its currency it
proves very helpful in increasing the exports of goods. The value of the home
currency fall relatively to foreign currency hence the foreigners are able to
buy move goods with the same amount of their own currency or for the same
amount of goods they have to pay less in terms of their own currency than
before.
Devaluation
A country can turn the balance of payments
in its favour by devaluating her currency. In this case also the devalued
currency will become cheaper in terms of the foreign currency and the
foreigners will be able to buy move goods by paying the same amount of their
own currency. The effect is the same as in the case of depreciation.
Deflation
Deflation means construction of currency. If
currency is contracted then according to the quantity theory of money the value
of the currency will rise or the prices will fall. When prices fall the country
becomes a good country to buy in and not a good country to sell into Exports
will also thus increase and imports will be checked and hence the balance of
trade will become favourable.
Exchange
Control
Under a system of exchange control, all
exporters are asked to surrender their claims or foreign currencies to the
central bank which pays in return the home currency, which the exporters really
want. This available foreign exchange is rationed by the central bank among the
licenced importers. Thus imports are restricted to the foreign exchange
available. There is no danger of more goods being imported than exported.
Question
29 - Balance of Payment
Q.29.
Write a detailed note on Balance of Payments.
BALANCE OF PAYMENTS
Each nation periodically publishes a set of statistics that
summarize for a given period all economic transactions between its residents
and the outside world. This statistical statement is referred to as balance of
payments. The accounts show how a nation has financed its internation
activities during the reporting period. They also show that what changes have
taken place in the nations financial claims and obligations with the rest of
the world.
STANDARD
PRESENTATION
The IMF has significantly worked with
success to standardize the system and the form of presentation.
B.O.P –
DOUBLE ENTRY ACCOUNT
The B.O.P used double entry accounting.
Transactions are recorded as credits of the yield receipts from or claims
against foreign owners. Credits are received for example by exports of
merchandise, sale of securities overseas and rendering services to foreigners.
Similarly, debits are recorded of transactions cause payments to foreigners
e.g. importing goods, tourist expenses abroad, purchase of foreign bonds.
B.O.P –
CURRENT ACCOUNT
The Current Account uncludes merchandise
trade in good and International Services are termed as Invisible trade. There
are four basic service components. Tourism, Investment, Private Sector,
Services such as royalties, rent, consulting and engineering fees etc and
Government services such as diplomatic and buildings and membership fees in
international organizations.
B.O.P – CAPITAL
ACCOUNT
The capital account has a long term and a
short term sector. The long term amount shows the inflow and outflow of capital
commitments which have a maturity longer than a year. Short term capital
movement frequently have a maturity date from 30-90 days. Long term capital
items generally include loans to and from other governments, financial support
for development. Projects abroad and export financing. Short term capital
include paying for international services, selling accounts etc.
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Question 28 - Balance of Trade
Q.28. Define Balance of Trade
BALANCE OF TRADE
Balance of trade refers to the difference in the
value of imports and exports of commodities only i.e. visible items only.
Movements of goods between countries is known as visible trade because the
movement is open and can be verified by the custom officials with respect to
balance of trade the following terminologies are important.
Balanced Balance of Trade
If during a given years exports and imports of
the country are equal the balance of trade is said to be Balanced.
Favourable Balance of Trade
If the value of exports exceeds the value of
imports the country is said to experience an export surplus or favourable
balance of trade.
Un-Favourable Balance of Trade
If the value of imports exceeds the value of its
exports the country is said to have a deficit or an adverse balance of trade.
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Question 27 - Direct and Indirect Methods Adopted of Exchange
Control
Friendsmania.net
Q.27. Compare the direct and Indirect methods
adopted of exchange control.
COMPARISON OF DIRECT & INDIRECT METHODS
These methods of exchange control are known as
indirect methods because they do not control the exchange rate but only
influence it. On the others hands the direct methods of intervention,
restriction and exchange clearing agreements have the effect of directly
controlling the exchange rate or the foreign exchange market.
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Question 26 - Foreign Exchange
Friendsmania.net
Q.26. How does a country controls its foreign
exchange?
METHODS OF EXCHANGE CONTROL
Paul Einzig is his book exchange controls has
mentioned as many as 41 different methods of exchange control. They can be
categorized as
1. Direct Method
2. Indirect Method
They are discussed here as under.
1. DIRECT METHOD
The direct method are further classified as:
Intervention
For an effective control of foreign exchange
rates and the foreign exchange market the government usually have a central
authority i.e. the Central Bank that has the complete power to control and
regulate the foreign exchange market. Under this method any body who either
wants to purchase or sell foreign exchange he has to deal with the central
bank. All the selling and purchasing transactions of foreign exchange is
controlled by the central bank which helps it to adjust demand and supply of
foreign exchange according to the need of the country.
Restriction
Exchange restriction is another powerful weapon
of exchange control. It refers to the policy by which the government restricts
the supply of its currencies coming into the exchange market. It is achieved
either by one of the following methods.
i. By centralizing all trading in foreign
exchange with central bank of the country.
ii. To prevent the exchange of national currency
against foreign currency with the permission of the government.
iii. By making all foreign exchange transactions
through the agency of the government.
Exchange Clearing Agreement
Under this method the countries engaged in trade
pay to their respective central bank the amounts payable to their respective
foreign creditors. The central banks they use the money in off setting the
corresponding claims after fixing the value of the foreign currencies by common
agreement. The basic principle is to offset international payments so that they
have not to be settled through the medium of the foreign exchange market.
INDIRECT METHODS
The most commonly used direct method or tool of
exchange control is the use of tariff duties and quotes and other quantative
restrictions on the volume of international trade. By imposing tariff and
quotes the demand for the foreign currency falls down in the case of
restricting the imports.
Rate of Interest
Another method of indirect exchange is the rate
interest. The rate of exchange is the result of demand and supply of each other
currencies arising out of trade and capital movement. A high rate of interest
in a country attracts short term capital from other countries that leads to a
exchange rate for the currency in terms of other currencies goes up.
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Question 24 - Fluctuation in Rate of Exchange
Q.24. What are the causes of fluctuation in the
rate of exchange of a country?
The rate of exchange fluctuates in the market
due to interplay of demand and supply of currency of a particular country. This
is the result of some of the following transactions.
BALANCE OF TRADE
The main reason for fluctuations in the rate of
exchange of the currency is the value of imports and exports of a country. If
the value of imports exceeds the value of exports the rate of exchange will
lend downwards and vice versa.
FOREIGN INVESTMENT
Foreign capital investment in a country
necessities the payment of dividends or interest to the investing countries. If
the capital absorbing country is not in a position to pay such claims in
foreign currency, the rate of exchange of that country will definitely fall
down.
SERVICE CHARGES
Freight and Insurance expenses also fluctuates
the rate of exchange of a country. If the importing country does not have her
own shipping companies the transportation charges are to be paid to foreign
ships. So the insurance premium in case is to be paid to foreign companies.
This creates a demand of foreign currency and if the supply is limited the rate
of exchange will fall.
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Question 25 - Objectives of Exchanges Control
Q.25. Identify the objectives of exchanges
control?
OBJECTIVES OF EXCHANGE CONTROL
The following are some of the objectives of
exchange control.
To restore Equilibrium
The chief objective of exchange control is to
restore equilibrium in its balance of payments. If a country finds that its
balance of trade has been persistently unfavourable then it must do something
set it right. The balance of payment must ultimately be made to balance.
To Protest Home Industries
Another objective of exchange control is to
protect the home industry from unfettered competition from abroad if the people
at home are more interested in purchasing foreign goods it will ultimately
discourage the local producers to produce more. It will directly affect the
National Income and the domestic Gross Product of the country.
To Conserve Foreign Reserves
To conserve foreign reserve is another major
objective of exchange control. Every Country needs foreign exchange in order to
maintain its stability monetarily in the present age. Also the countries need
foreign exchange to make payments for their imports and to pay back their debts
obligation. For this a country must have foreign currencies on their hand. If
there is a deficiency of the foreign exchange it is going to affect its
liquidity position internationally and its credit rating.
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Question 23 - Rate of Exchange
Friendsmania.net
Q.23(A). Define the term rate of exchange.
Q.23(B). Explain how the rate of exchange is
determined?
RATE OF EXCHANGE
The rate at which the currency or monetary unit
of one country can be exchanged with the monetary unit of other country is
called the rate of exchange. In other words, the rate at which a unit of one
country exchanges for the currency of another is the rate of exchange between
them. It may be used to denote the system whereby the trading nations pay off
their debts.
Determination of Rate of Exchange
The rate of exchange is determined under the
following under the following money systems as:
Under Gold Standard
If two currencies are on gold standard and if
their currencies are expressed in terms of gold i.e. a certain weight of gold
then the rate of exchange is determined by reference to the gold contents of
the two currencies. Suppose Pakistan and United States are on gold standard the
rupee being equal to 10 grams of gold and dollar consisting of 50 grams of
gold. The rate of exchange between the two countries will be
1 Rupee = 10/50 = 1/5 $ or 0.20 cents
1 Dollar = 50/10 = 5 Rupees.
Thus the rate of exchange is determined in a
direct manner by comparison between the gold contents of the two countries.
This rate of exchange is also known as Mint Par of Exchange. The actual rate in
the foreign exchange market will be slightly different from the mint par to
allow for certain expenses. However the actual rate of exchange between
currencies will not depart much from the mint par and will move between the two
points of export and import of gold. These points are called Gold Points.
Under Paper Currency Method
This phenomenon of exchange rates determination
is also called Purchasing Power Parity Theory. No country in the world is rich
enough to have a free gold standard. All countries nowadays have paper
currencies. According to this theory the rate of exchange between two countries
depend upon the relative purchasing powers of their respective currencies. Such
will be the rate which will equate the two purchasing powers.
For example if a certain assortment of goods can
be purchased for ₤ 1 in Britain and a Similar assortment of goods with Rs. 16
in Pakistan then the purchasing power of ₤ 1 is equal to the purchasing power
of Rs. 16. Thus the rate of exchange according to purchasing power parity
theory will be
₤ 1 = Rs.16
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Question
22 - Renewal and Retirement of a Bill of Exchange
Friendsmania.net
Q.22. What is Renewal and Retirement of a bill of exchange?
RENEWAL OF THE BILL
Sometimes the drawee of the bill is unable to
pay the bill on its agreed date or time. In such a situation the drawee can
apply to issue a new bill subject to certain conditions after the agreement of
the drawer. This issuance of a new bill for some new time is known as renewal
of the bill. After the issuance of the bill the former is considered to be
cancelled. But if the drawee again unables to pay the newly issued bill, the
first bill with all its farmer conditions becomes payable and valid.
RETIREMENT OF THE BILL
Sometimes the drawee pays the bill before the
agreed date enjoying the rebate which is provided to him for prepayment of the
bill. This is known as retirement of the bill. The amount of the rebate depends
upon the time left for payment and the amount for which the bill is drawn.
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Question 21 - Noting of the Bill
Friendsmania.net
Q.6. What do you mean by Noting of the Bill?
NOTING OF THE BILL
When the bill of exchange is dishonoured by the
party, the holder of the bill has a legal right to take action against them. In
this regard he prepares a type of Public Notice. It is known as Notery Public
which is attached along with the bill and is again presented for repayment.
Usually this entry of the bill is made on a separate attached with the bill. If
the payment is not made i.e. refused again then the date of the presentation
the reference of the register with his signature is entered in the notice. This
is called Notice of the Bill.
PROTESTING OF THE BILL
Sometimes due to refusal of payment a
certificate or document is issued by the notary public containing all the
information about the dishonour. This document is known as protest of the bill.
It contains
i. Attested copy of the bill.
ii. Signature of Notery Public.
iii. The name of the person whose bill was
protested.
iv. The date and amount of the protest.
v. The cause of the protest.
vi. The reply of the drawee.
vii. The reason of absence of the drawee and the
accepted.
viii. The reason for the non-payment of the
bill.
ix. The certificate stamp of the notery public.
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Question 18 - Essentials of a Bill of Exchange
Friendsmania.net
Q.18. What are the essentials of a bill of
exchange?
ESSENTIALS OF A BILL OF EXCHANGE
The following are the essentials of a bill of
exchange.
i. It must be in writing.
ii. It must be an unconditional order to pay.
iii. It must be signed by the maker.
iv. It must be addressed by one person to
another.
v. It must be written for some certain sum of
money.
vi. It must be payable on demand.
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Question 17 - Parties to a Bill of Exchange
Friendsmania.net
Q.17. Who are the parties to a Bill of Exchange?
The parties to a bill of exchange are
i. The Drawer who prepares the bill.
ii. The Drawee in whose name the bill has been
drawn.
iii. The Payee to whom the bill has to be paid.
iv. The Endorsee to whom the bill has been
transferred by way of endorsement by the payee.
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Question 16 - Bill of Exchange
Friendsmania.net
Q.1. Define a bill of exchange and its different
kinds.
BILL OF EXCHANGE
A bill of exchange is a written acknowledgment
of a debt. It is written by the credit and accepted by the debtor. Section 5 of
the Act define a bill of exchange as ‘’An instrument in writing containing an
unconditional order, signed by the makers directing a certain person to pay a
certain sum of money only to, or to the order of a certain person or to the
bearer of the instrument.
Kinds of Bill of Exchange
A bill of exchange is of the following types.
i. Inland Bill
A bill of exchange which is drawn in a country
and is payable anywhere in the same is called an Inland Bill. For example if a
bill is drawn in Pakistan and is payable in any city of the country it will be
considered as an Inland Bill.
ii. Foreign Bill
If a bill is drawn in one country but is payable
in any other country, this type of bill of exchange is called a foreign bill.
For example it has been drawn by a businessman in Pakistan in the name of other
businessman living in Japan, the payment of the bill of exchange will be among
the two businessman of different nations therefore this kind of bill of
exchange is called Foreign Bill.
iii. Commercial Bill
A bill which is drawn for business purposes is
called a Commercial bill. Sometimes a businessman does not pay in cash but
issues a bill which is payable in some future date such type of a bill is
called a Commercial Bill.
iv. Accomodation Bill
An accommodation bill is a bill whereof the
acceptor according to the terms of the instrument stands as a surety for some
other person who may or may not be a party thereto.
v. Time Bill
These are such type of bills which are payable
on demand on some specified dates. These specified dates may be of present or
future.
vi. Demand Bill
The bills which are payable on demand are called
demand bills. Such type of bills are generally used for specific purposes.
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Write Short Notes & Drafts
Friendsmania.net
Q.15. Write Short Notes.
PROMISSORY NOTE
The promissory note is one of the simplest forms
of the credit instrument. Section 4 of the Act defines a Promissory Note as an
instrument in writing not being bank note or a currency note containing an
unconditional undertaking signed by the maker to pay a certain sum of money
only to or to the orders of a certain person to the bearer of the instrument.
Characteristics of a Promissory Note
The essential characteristics of a promissory
note are as follows
i. It is a written document signed as follows.
ii. It contains an unconditional promise to pay.
iii. Besides an acknowledgement a promissory
note is an express promise to pay.
iv. Promissory note must always relate to a
definite and certain amount of legal money of the country and not to foreign
money.
v. It should not be a bank note or currency
note.
vi. No particular from is prescribed for it.
vii. A promissory note is not payable to the
bearer on demand.
viii. The person to whom the promise is made
must be definite person.
DRAFT
A draft is a cheque drawn by one branch of a
bank upon another situated at any other place required to pay a fixed / certain
amount of money to a specified person or by his order. A bank draft may either
by inland or foreign. Drafts are issued by banders after receiving written and
signed applications. The person is required to remit the required amount of
money along with its commission. The banker hands over the draft to the
depositors and sends a credit advice to the branch upon which the draft is
drawn.
Draft are a common media of transferring money
from one place to another. They are of great importance for financing trade,
specially foreign trade. The draft are also known as demand draft.
LETTER OF CREDIT
The letter of credit is a request made by the
issuing bank to its correspondent or agent making the request on demand on any
draft on the issuing bank up to the amount mentioned in the letter of credit. A
letter of credit remain enforced for a fixed date only. They are issued only to
the persons who furnish guarantee or securities or make payment of the full
amount there in. The L.C’s are of great significance in international trade.
Specially the importers and exporters frequently use them. It saves from the
trouble of carrying money from place to place with the risk of loss or theft.
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Question 14 - Crossing of a Cheque
Q.14. What do you understand by the term
Crossing of a Cheque?
Friendsmania.net
CROSSING OF A CHEQUE
A Crossing is a direction to the paying banker
that the cheque should be paid only is a specified banker named in crossing. A
cheque is said to be crossed when it bears across it is face the transfers
lines without any words on them.
Crossing prevents the cheque from being cashed
by anyone except the payee. This ensures safety of payment by means of cheques.
It affords security and protection to the true corner. Cheques are crossed in
order to avoid losses arising from open cheques. However it does not affect the
negotiability of a cheque.
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Q.13
(A). Define Endorsement.
Q.13 (B). What are the different kinds of Endorsement?
ENDORSEMENT
The word Endorsement has been derive from the
latin word ‘’Indorsum’’ which means ‘’On the back’’. Anything written or
printed on the back of a deed or instruments is called endorsement. When the
member or holder signs his name on the negotiable instrument for the purpose of
negotiation i.e. direction to pay the amount to another person is called
Endorsement. Section 15 of the Negotiable Instrument Act 1881 defines
Endorsement as
When the maker or holder of a negotiable instrument sign the same,
otherwise than as such maker for the purpose of negotiation on the back or face
therefore on a slip of paper or so signs for the same purpose a stamp paper
intended to be completed as a negotiable instrument he is said to endorse the
same and he is called the endorse.
KINDS OF ENDORSEMENT
Different kinds of Endorsement are as follows.
i. Blank or General Endorsement
When the endorser simply put his signature on
the back of the instrument without specifying the name of the endorsee, it is
said to be general endorsement. The holder can convert it in full endorsement
by writing the name of the payee above the signature of the endorsee.
ii. Special or Full Endorsement
It specifies in addition to the signature of the
endorser the person to whom or to whose order the instrument is payable.
iii. Restrictive Endorsement
An endorsement which prohibited further
negotiation of the instrument is called restrictive endorsement. For instance
if a cheque is endorsed saying "Pay A only" or "Pay A for A/C of
B" the endorsed has no power to transfer his right further.
iv. Partial Endorsement
An endorsement which makes the transfer of the
instrument from the endorser to the endorsee after the fulfillment of stated
conditions is called Partial Endorsement.
Sans Recourse
When a person wants to exclude his liability to
the endorse or any subsequent holder in case of dishonour of the instrument.
The Endorser fees himself from his liability on a negotiable instrument by
writing the words SANS
RECOURSE after the name of the endorsee. He should make it
clean that he endorsee or the holder should not look to him for payment in case
of the dishonour of the instrument. The endorsee may refuse to take an instrument
with such an endorsement.
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.12
(A). What do you mean by Dishonour of a cheque.
Q.12 (B). Under what circumstances a cheque is said to be dishonoured.
DISHONOUR OF A CHEQUE
The relation between a banker and his customer
is that of a debtor and a creditor. Money deposited will always belong to the
customer and the bank will be bound to return its equivalent to the customer or
to any person to his order. But in certain cases a banker refuses to honour his
customers cheque. When the payment of the cheque is refused by the bank, it is
said to be dishonoured.
REASONS FOR DISHONOUR
A cheque may be dishonoured under the following
circumstances.
i. When balance to the credit of the customer is
insufficient to meet the cheque.
ii. When money deposited cannot be withdrawn on
demand in the case of fixed deposit.
iii. When the customer closes the account before
the cheque is presented for encashment.
iv. When the cheque is not properly drawn.
v. If the cheque is crossed but presented on counter
for the payment.
vi. When the cheque is post dated.
vii. If death information of the A/C holder is
received.
viii. If the A/C holder is declared insolvent by
the law.
ix. If the A/C holder has stopped the payment.
x. If the signature on the cheque is different
with the specimen signature.
xi. If the amount written in figures is
different from the amount written in words.
xii. If the cheque is presented for payment at a
branch other than the one where the customer has the account.
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Q.11.
Define the different types / kinds of a cheque.
TYPES / KINDS OF A CHEQUE
Cheque may be of different types. Some of them
are
Order Cheque
Order Cheque is a which is expressed to be so
payable or which is expressed to be payable to a particular person without
containing words prohibiting transfer or indicating that it will not be
transferable.
Open Cheque
They are payable in cash at the counter of the
banks to the bearer of the cheque.
Crossed Cheque
These type of cheques are not encashed at the
counter but which can be collected only by a bank from the drawer bank. But
these days an individual can also draw a crossed cheque for the purpose of
safety and security in certain cases.
Bearer Cheque
A bearer cheque is that which can be cashed for
the bank by the bearer of the cheque. Any person who is in possession of a
bearer cheque can cash it without any difficulty.
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Question 11 - Kinds of Cheque
Friendsmania.net
Q.11. Define the different types / kinds of a cheque.
TYPES / KINDS OF A CHEQUE
Cheque may be of different types. Some of them
are
Order Cheque
Order Cheque is a which is expressed to be so
payable or which is expressed to be payable to a particular person without
containing words prohibiting transfer or indicating that it will not be
transferable.
Open Cheque
They are payable in cash at the counter of the
banks to the bearer of the cheque.
Crossed Cheque
These type of cheques are not encashed at the
counter but which can be collected only by a bank from the drawer bank. But
these days an individual can also draw a crossed cheque for the purpose of
safety and security in certain cases.
Bearer Cheque
A bearer cheque is that which can be cashed for
the bank by the bearer of the cheque. Any person who is in possession of a
bearer cheque can cash it without any difficulty.
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Question 10 - Cheque
Friendsmania.net
Q.10 (A). Define a Cheque?
Q.10 (B). Name the parties to a cheque.
Q.10 (C). What are the essentials of a cheque?
Q.10 (D). Draw a specimen of a cheque.
CHEQUE
Section B of the Act defines a cheque as, ‘’A
bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand.’’ A cheque is a bill of exchange but a bill of
exchange often is not a cheque. A cheque is always payable on demand. The
person drawing or making the cheque must be a customer of the bank and must be
having the required find as deposit with the bank.
PARTIES TO A CHEQUE
The parties to a cheque are
Drawer He is the maker of the cheque. He must be
the holder of the account at the bank and must sign the cheque as per specimen
signature.
Drawee He is the banker with whom the A/C is
maintained by the drawer of the cheque.
Payee He is a person named in the cheque to whom
or to whose order the payment is to be made.
ESSENTIALS OF A CHEQUE
A cheque must have the following features /
essentials.
i. It must be in writing but should not be
written by a pencil.
ii. It must be an unconditional order to pay.
The drawer must not pay any condition for the payment of cheque.
iii. It must be signed by the person giving it.
iv. Cheque must be drawn upon a banker not else.
v. It must be for the payment of a certain sum
of money only.
vi. Amount of money must be written in figures
and words.
vii. The cheque must be payable on demand.
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Question 10 - Cheque
Friendsmania.net
Q.10 (A). Define a Cheque?
Q.10 (B). Name the parties to a cheque.
Q.10 (C). What are the essentials of a cheque?
Q.10 (D). Draw a specimen of a cheque.
CHEQUE
Section B of the Act defines a cheque as, ‘’A
bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand.’’ A cheque is a bill of exchange but a bill of
exchange often is not a cheque. A cheque is always payable on demand. The
person drawing or making the cheque must be a customer of the bank and must be
having the required find as deposit with the bank.
PARTIES TO A CHEQUE
The parties to a cheque are
Drawer He is the maker of the cheque. He must be
the holder of the account at the bank and must sign the cheque as per specimen
signature.
Drawee He is the banker with whom the A/C is
maintained by the drawer of the cheque.
Payee He is a person named in the cheque to whom
or to whose order the payment is to be made.
ESSENTIALS OF A CHEQUE
A cheque must have the following features /
essentials.
i. It must be in writing but should not be
written by a pencil.
ii. It must be an unconditional order to pay.
The drawer must not pay any condition for the payment of cheque.
iii. It must be signed by the person giving it.
iv. Cheque must be drawn upon a banker not else.
v. It must be for the payment of a certain sum
of money only.
vi. Amount of money must be written in figures
and words.
vii. The cheque must be payable on demand.
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Define Credit Instruments
Friendsmania.net
Question 9 - Credit Instruments
Q.9(A). Define Credit Instruments.
Q.9(B). Define the different kinds of Credit
Instruments.
CREDIT INSTRUMENTS
Credit Instruments are the documents describing
details of credit and debit. Credit Instruments provide a written means fro
future reference describing terms and conditions of any debt and loan. Credit
Instruments may be an order for payment of money to a specified person or it
may be a promise to pay the loan. Credit Instruments generally in use are
cheques, bills of exchanges, bank overdraft etc.
KINDS OF CREDIT INSTRUMENTS
There are two broad kinds of Credit Instruments.
1. Negotiable Instruments
According to the negotiable instruments Act
under Section 13-A, A negotiable instrument means a cheque promissory note and
a bill of exchange which are payable to the bearer of the instrument or the
person to be ordered.
Features of Negotiable Instruments
i. It must be unconditional
ii. It must be in writing
iii. It is payable on demand or the period for
the payment which is determined.
2. Non-Negotiable Instruments
Non-Negotiable Instruments can not be
transferred or the documents which are restricted to transfer by the issuer
e.g. Money Order, Postal Order, Shares Certificate etc. Such documents appears
at the name of the beneficiary and the payments are made only to those persons
to whom the instruments are made payable.
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Central Bank - Credit
Friendsmania.net
Q.3. Show how the Central Bank of a country
controls CREDIT?
The modern economy is a credit economy. Credit
is the life-blood of modern business. Accordingly control of credit is
essential for stability and orderly growth of an economy. There are two types
of controls used by the central banks in modern time for regulating bank
advances.
i.Quantitive or General Control
ii.Quantitive or Selective Credit Controls
These are discussed below
i. Quantitive or General Control.
The aim of Quantitive Controls is to regulate
the amount of bank advances i.e. to make the banks lend more or lend less. Some
of the controls are
a. Manipulation of Bank Rate
The bank rate is the rate at which the central
bank of a country is willing discount the first class bills. It is thus the
rate of discount of the central bank. If the central bank wants to control
credit, it will raise the bank rate. As a result the market rate will go up.
Borrowing will consequently be discouraged. Those who hold stocks of
commodities with borrowed money will unload their stocks, since as a result of
the rise in the interest. They will repay their loans thus the raising of bank
rate will lead to a contraction of credit.
b. Open Market Operations
The term open market operations in the wider
sense means purchase or sale of any kind of papers in which it deals like
government securities or any other trade securities etc. In practice this term
is used to identify the purchase and sale of government securities by the
central bank. When the central bank sells securities in the open market it
receives payments in the form of a cheque on one of the commercial banks. If
the purchaser is a bank the cheque is drawn against the purchasing bank. In
both cases the result is the same. The cash balance of the bank in question
which it keeps with the central bank is to that extent reduced with the
reduction of its cash the commercial bank has to reduce its louding. Thus
credit contracts.
c. Varying Reserve Ratio
The varying reserve ratio method is comparative
a new method of credit control used by central banks in recent times. The
minimum balance to be maintained by the member banks with the central banks are
fixed by law and the central bank is given statutory power to change these
minimum reserves. Variations of reserve requirements affect the liquidity
position of the banks and hence their ability to lend. It reduces the excess
reserves of member banks for potential credit expansions.
d. Credit Rationing
Credit rationing means restrictions placed by
the central bank on demands for accommodation made upon it during times of
monetary stringency and declining gold reserves. The credit is rationed by
limiting the amount available to each applicant. Further the central bank restrict
its discount to bills maturing after short periods.
ii. Quantitive or Selective Controls
In this regard the following methods are used.
i. Varying Margin Requirement
The central bank controls credit by varying
margin requirements. While lending money against securities the bank keeps a
certain margin. They do not advance money to the full value of the security
pledges for the loan. If it is desired to curtail bank advances the central
bank may issue directions that a higher margin be kept. The raising of margin
requirements is designed to check speculative in the stock market.
ii. Regulation of Consumer Credit
A part from credit for trade and industry a
great deal of credit in development countries at any time may be for durable
consumer goods like houses, motor cars, refrigerator etc on purchase or
installment credit system. Central seek to control such credit in several ways.
E.g.
* by regulating the minimum down payments in
specified goods.
* by fixing the coverage of selective consumer goods
* by regulating the maximum maturities on all
installments credits.
iii. Direct Action
Direct action implies measures like refusal on
the part of the central bank to rediscount for the banks whose credit policy is
not in accordance with the wishes of the central bank or whose borrowings are
excessive in relation to their capital and reserves.
iv. Moral Sausion
The central bank may request and persuade member
banks to refrain from increasing their loans for speculative or non-essential
activities.
v. Publicity
The method of publicity is used by issuing of
weekly statistics, periodical review of the money market conditions, public
finances, trade & industry the issue of weekly statements of assets &
liabilities in the form of balance sheets.
BANKER'S BANK
Broadly speaking the central bank acts as a
bankers bank in three capacities.
i. As the Custodian of Cash Reserves
In every country its commercial bank keep a
certain percentage of their cash reserves with the central bank. Infact the establishment
of central bank makes it possible for the banking system to secure the
advantages of centralized cash reserves.
ii. As Lender of the Last Resort
As a lender of the last resort in times of
emergencies the central bank gives financial accommodation to commercial banks
by rediscounting by bills. The monopoly of note issue and centralization of
cash reserves with the central bank increase its capacity of growing credit and
thus to rediscount the bills as the lender of last resort.
iii. As a Bank of Central Clearance
The central bank act as a clearing house for
member banks. As the central becomes the custodian of cash reserves of commerce
was banks it is an easy and logical step for it to act as a settlement bank or
clearing house for other banks as the claims of banks against one another are
settle by simple transfers from and to other accounts.
CONTROL OF CREDIT
By far the most important of all central banks
in modern times is that of controlling credit operations of commercial banks
i.e. regulating the volume and direction of bank loan. On the level or volume
of credit depends largely the level employment and the level of prices in a
country.
Maintenance of Exchange Rates
Another important function of a central bank is
to keep stable the foreign value of the home currency. A stable exchange rate
is necessary to encourage foreign trade and inflow of foreign investment which
is so essential for accelerating the pace of economic growth particularly
underdeveloped countries.
Custodian of Cash Reserves
It is the central bank which serves as the
custodian of a nation’s reserves of gold and foreign exchange. It is the duty
to take appropriate measures to safeguard these reserves.
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Functions of a Central Bank
Friendsmania.net
Q.2 Indicate the different functions of a
Central Bank.
A Central bank performs many important and
essential functions which are described as follows:
MONOPOLY OF NOTE ISSUE
Formerly in certain countries, many banks issued
their own notes. This resulted in uncontrolled confusion. Hence, gradually the
right of note issue was withdrawn from ordinary banks. Note issue became the
sole privilege of the central bank. Today the central bank in every country
enjoys the exclusive privilege of bank note issue.
BANK TO THE GOVERNMENT
This functions of a central bank may be studied
under the following two heads.
As Banker To The Government
As governments banker, the central bank keep the
deposits or banking accounts of government departments boards and enterprises.
It advances short term loans to the government in anticipation of collection of
taxes or the raising of loans from the public. It also makes extra-ordinary
advances during depression, war or other national emergencies.
As An Agent Of The Government
As an agent of the government the central bank
is often entrusted with the management of the public debt and issue of new
loans and treasury bills on behalf of the government. Moreover the central bank
is the fiscal agent to the government and receives taxes and other payments
into its account.
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Q.6.
Define a Central Bank.
CENTRAL BANK
A banking system of a country without a central
bank at the top in like a human body without a head. In the words of R.P. Kene
‘’’central bank is an institution charged with the responsibility of managing
the entire monetory and banking affairs of the country in the nation’s
interest.
The Central bank is generally recognized as a
bank which constitutes the apex of its monetory structure, controls, directs
and equalates the activities of other banks operating in the economy. A central
bank has direct dealings with the governments and other banks. It is a separate
branch of banking having distinct functions quite different from other banks.
It operates not for profit sake. But with an objective of bring in economic
prosperity to the people and ensuring economic stability in the country
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Question 5 - Importance of a Bank
Friendsmania.net
Q.5. Discuss the importance of a bank for a
country.
* 1 IMPORTANCE OF A BANK
* 2 ACCEPTANCE OF DEPOSITS
* 3 ADVANCING LOANS
* 4 NON-COMMERCIAL FUNCTIONS
IMPORTANCE OF A BANK
The importance of the banking system to an
economy no emphasis. A well organized banking system provide liquidity and
mobility to the financial resources available in the economy. It helps the
economy in the following regards.
1. BRING ECONOMIC STABILITY IN THE COUNTRY
The banks play a prominent role in providing
stability to a country economically. It helps in getting out of depression or
inflation. During depression the banks follow a cheap money policy and generate
money income which pushes up the consumption level and the economy gets price
support to reactivate production units and the produced level is enhanced which
raises the employment level. The investment rises to stimulate saving and to
expand which further increases employment opportunities. Similarly the banks
specially the central banks take certain measures to control inflation in the
economy. The central bank through it is well adjusted monetory policy stablises
the internal price level and thus facilitates economic & development in the
country.
2. CO-ORDINATION AMONG ALL THE UNITS
The banking system maintains a coordination
among all the units which are engaged in banking functions. It consists of
collecting of surplus money from the people and lending them to the
entrepreneurs who utilize it for productive purposes.
* Creating a country wide circulation of money
through remittance facilities.
* Activating idle money to make them productive
* Provide finance by credit accommodation to
different sectors of the economy.
3. ENCOURAGE SAVING
The banks encourage saving by providing safe
custody and making it a source of income to the persons who save. The people
having surplus money arising out of saving, deposit it with the banks. The
banks pay them interest and get them relief from burden of safety and other
risks.
4. ACCERATE INVESTMENT
The banks constitute constitute a source of
accelerating investment in the economy . The funds collected from the
depositors are used for financing development projects in the public and
private sectors and for granting loans and advance for raising the production
level of the country.
5. CAPITAL FORMATION
In any plan of economic development capital
occupies a place of pivotal importance. Without capital nothing can be achieved
effectively. Banks obimulate capital formation in the country. Savings of the
people is capitalized through lending by banks.
6. CREATION OF MONEY
Banks create money in the sense that through
credit granted to entrepreneurs, whether to the private or government agents
they increase supply of money which they manage because of inflow of fund
through deposits. The development agencies manage to bridge the gap between the
income and expenditure and thus the development work continues undisturbed
7. FACILITATE TRADE
The banks facilitate trade by furnish
information regarding financial stability and dealings of the parties in the
market to customers. They provide remittance facility to the entrepreneurs and
help them in the settlement of transactions even at far places.
ACCEPTANCE OF DEPOSITS
Acceptance of deposits is perhaps the major
functions that a commercial bank performs. It accumulates the scattered savings
of the individuals and offer them attractive incentives to make deposits in the
form of profit. The bank accepts three types of deposits from the public.
Fixed Deposit Account
Money in this account is accepted for a fixed
period of time and cannot be withdrawn before the expiry of that period.
Current Account
The deposits can withdraw money from this
account whenever he wants to. The banks generally grant no interest on this
account. On the other hand it levies certain charges on the customer for the
services rendered by it.
Saving / Profit & Loss Sharing Account
All the banks in Pakistan nearly have started
accepting deposits only under Profit and Loss Sharing Accounts where the
depositors share in profit and loss instead of getting interest (Commonly known
as Profit).
ADVANCING LOANS
The second important function of a commercial
bank is to advance loans. The banks advance certain types of loans to their
customers such as:
Ordinary Loans
Here the banks give a specified sum of money to
a person or firm against some collateral security. The loan money is credited
to the account of the customer and he can withdraw the money according to his
requirements.
NON-COMMERCIAL FUNCTIONS
The non-commercial functions of the commercial banks
are as follows.
i. Agency Functions
Commercial banks act as the agents of their
customers and perform agency functions as transfer of funds from one place to
another. Collecting customers funds and crediting the same to their accounts.
Purchase and Sale of shares and securities, collecting dividends on the shares
of the customers and payments of insurance premium on policies of the
customers.
ii. Purchase and Sale of Foreign Exchange
The bank also carries on the business of buying
and selling of foreign currencies Ordinarily their functions is performed by
specialized banks known as Foreign Exchange Banks.
iii. Financing Internal & Foreign Trade
The bank finances internal and foreign trade
through discounting of exchange of bills. This discounting business greatly
finances the movement of internal and foreign trade.
iv. Creation of Credit
When the bank grants loan to its customers it
opens an account in the borrowers name and credits the amount of the loan.
Since the deposits of the bank circulate as money the creation of such deposits
lead to a net increase in the money stock of the economy. This is known as
Creation of Credit
v. Miscellaneous Functions
Bank performs different kinds of various
services other than described above such as collect utility of bills on behalf
of Government and other authorities. Provide valuable advice to customers about
trade and business provide information about sale and purchase of shares and
act according to Government policy like deduction of Zakat and Islamic blessing
System etc.
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Q.3.
Briefly state the history of the word “BANK”.
THE WORD “BANK”
The derivation of the world Bank has been
differently given by different authors. Same authors think that the word “BANK”
has been derived from the Italian word “BANCHI” or “BANCHERII”. The payable
used in Italian Business Houses. Some believe that it is derived from the
German word “BANCK” meaning heap or mounds. The first public bank of Venice
established on 1157 is considered as the first ever Public Bank.
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ORIGIN
OF BANKING
It is very difficult to trace out the exact
origin of banks. It is said that the evolution of banking business is as old as
the concept of money. Crowther in his book AN
OUTLINE OF MONEY says that the present
day banker has three ancestors merchants, money lenders and gold smiths. A
modern bank is something of these. It is believed that goldsmiths and grocers
of primitive days started keeping deposits of valuables and jewelleries people
on the basis of their sound financial position in the community. They charged a
certain amount from the depositors for the services rendered in keeping and
preserving the valuables in safe custody. But they soon realized that only a
small portion of metal and valuable deposited were taken bark by the people
even at the expiry of the stipulated period. They therefore began to make
profit by lending a part of these deposits. In case of lending, it was not
always gold or silver, but issued their receipts which would pass among the
people as if they were gold just like cheques in modern banks. The present day
banks are performing the same functions as performed by the money lenders and
goldsmiths of older days. Therefore it is believed that goldsmiths and
moneylenders are the ancestors of banks
INTRODUCTION
TO BANKING
Friendsmania.net
Q.1. Define and explain the term "Banking"?
The term bank or banking is one of those terms
that are increasingly being used in business language. With growing importance
of the financial sector of a country. Bank are considered to be the major role
players.
DEFINITION
A bank is an institution that deals in money.
But this definition does not cover all the aspects of banking business as it
includes all persons dealing in money, which is not true to be more perfect we
can say that ‘’’’’A bank is an organized house which borrows money from the
people for the sake of providing loan or services of monetory nature to
businessmen or need person.’’’’’
EXPLANATION
An institution that accepts money of the people
or organizations in the form of deposits and does its business is called a
bank. Banking system of a country refers to teh working process followed by the
banking institutions. It is identify through the relationship between the apex
bank.
Read more: Introduction to banking http://www.friendsmania.net/forum/banking/25624.htm#ixzz34bQmSxse