Banking
* Introduction of Banking System
* Central Banking
* Bill of Exchange
* Banking in Pakistan
Q.1. Define Bank and
explain that banking system of a country helps in its economic development.
OR
Write short notes on, * Industrial Bank, * Agricultural Bank, * Cooperative
Bank, * Exchange Bank, * Mortgage Bank, * Savings Bank
Meaning of Bank
It is generally said that the word "BANK" has been originated in
Italy. In the middle of 12th century there was a great financial crisis in
Italy due to war. To meet the war expenses, the government of that period
imposed a forced subscribed loan on citizens of the country at the interest of
5% per annum. Such loans were known as Compara, Mintuo etc. The most common
name was Monte. In Germany the word Monte was named as Bank or Banke. According
to some writers, the word Bank has been derived from the word Banke.
It is also said that the word Bank has been derived from the word Banco which
means a banch. The Jews money lenders in Italy used to transact their business
sitting on banches at different market places. When any of them used to feel to
meet his obligations, his banco or banch would be broken by the angry
creditors. The word Bankrupt seems to be originated from broken banco. Since,
the banking system has been originated from money lending business, it is
rightly argued that the word Bank has been originated from the world banco.
Today the word bank is used as a comprehensive term for a number institutions
carrying on certain kinds of financial business. In practice, the work Bank
means which borrows money from one class of people and again lends money to
another class of people for interest or profit.
Definition of Bank
Bank is defined in many ways by various authors in the books on economics and
commerce. It is very difficult to define a bank, because a bank performs
multifarious functions. Different kinds of bank having different functions may
be defined in different ways according to their functions. The evolution of
different type of banks, each specialization in a particular field, gives
emphasis on each and every kind of bank. A general and comprehensive definition
to cover all types of banking institutions would be unscientific and probably
impossible. Each type of bank should have its own definition explaining its
specialized functions. Legislators have understood this difficulty and that is
why the Bill of Exchange Act 1882 (England) defines thus A bank includes a body
of persons, whether incorporated or not, who carry on the business of banking.
From this definition it is clear to us that any institution which performs the
various banking functions may be termed as bank. But in practice it is found
that many banking functions vary from time to time and country to country. It
is not possible on the part of a single bank to perform all the banking
functions at the time. So there originated numbers of specialized banks with
the objective of performing one or more functions. As for example, Central
Bank, Commercial Bank, Industrial Bank, Agricultural Bank, Co-operative Bank
etc., are in the practical field.
Dr. Herbert L. Hart has defined a Banker as A Banker is one who in the ordinary
courses of business honours cheques drawn upon him by persons for whome he
receives money on current account. According to Sir John Paget No one and no
body corporate and otherwise can be a Banker who does not (i) take deposit
accounts (ii) take current accounts (iii) issue and pay cheques drawn upon
himself (iv) collect cheques crossed and uncrossed for his customers.
Hilton Banking Commission defines Bank or Banker in the following words:
Every person, firm or company using in the description or its title, Bank or
Banker or Banking and accepting deposits of money subject to withdrawal by
cheque, draft or order.
Banking Ordinance 1962 (Pakistan) defines Banking as Accepting for the purpose
of lending or investment of deposits of money from public, repayable on demand
or otherwise and withdrawal by cheque, draft, order or otherwise. Vise Sec.
5(1) and 5(B) Banking Co's Ordinance, 1962.
In view of the above definitions, a simple and short definition can be given as
Bank is an institution which deals in money and credit. According to this
precise definition A bank accepts deposits of money in savings and current
accounts at lower rate of interest or profit and gives on credit to needy
persons and businessmen at a higher rate of interest or profit. It also
transfers money for the clients from one city or country to another and also
performs various other agency services for earnings.
Importance of Banking
Bank play a significant role in the economic development. The overall economic
of a country is absolutely dependent on the efficient banking system.
Industrial, agricultural and commercial progress of a country is not possible
without a good banking system. The importance of banking may be stated as
follows:
1. Capital Formation
Economic development depends upon the division of economic resources from
consumption to capital formation. Capital grows out of savings. Banks play the
prime role in accumulating capital by collecting the scatered savings of the
people. Thus banks render a valuable service towards the development of a
country by encouraging the growth of capital.
2. Inexpensive Media of Exchange
Modern Banking provides inexpensive media of exchange. Issuing of currency
notes is a great achievement of modern banking. In addition the cheques issued
on the banks are frequently used instead of money in transacting business. Thus
the cheques economise the use of currency notes.
3. Development of Trade
and Industry
Bank utilise their collected funds by advancing loans to commercial and
industrial undertakings. In respect of foreign trade also, banks render a valuable
service by issuing letter of credit etc.
4. Reservoirs of Funds
Banks acts as the reservoirs of money in the country. In times of economic,
crisis the bankers come forward to help the Government by purchasing the
Government securities or by advancing loans.
5. Transfer of Funds
Banks facilitate the transfer of funds from one place to another safely and at
a very cheap cost through bank drafts, mail transfers, telegraphic transfer,
travellers cheque etc.
6. Dealing in Foreign Exchange
Banks deal in foreign exchange by purchasing and selling foreign currencies and
by issuing letters of credit. Foreign remittances of funds are possible only
through banks.
7. Money Market Operations
The structure and ups and downs of money market in the country are largely
dependent on the bankers activities. Under the guidance of the central bank all
the banks in the country do their best for the sound management of money
market.
8. Service to Customers
Banks perform various agency services on behalf of their customers. They
collect or make payments of bills of exchange, dividend, insurance premium etc,
on behalf of their customers. They act as the trustees ore executors of
documents etc. They also extend financial advises to their customers.
Functions of Modern Bank
The following is the list of functions or services rendered by a modern bank:
1. Bank provides inexpensive media of exchange through its cheques etc.
2. Bank keeps deposits of public.
3. Bank finances trade and industry.
4. Bank keeps in capital formation by economic savings.
5. Bank acts as Reservoir of funds.
6. Bank deals in foreign exchange and finances foreign trade.
7. Central Bank issues notes and controls money supply.
8. Central Bank controls credites, exchange and the money market.
9. All the banks participate in the development of money market.
10. Bank facilitates the transfer of funds from one place to another.
11. Specialized banks helps in the development of agriculture and industry.
12. Banks acts as the custodian of customers valuables.
13. Bank acts as underwriters for raising capital or loan by Government, Public
Bodies and Campanies.
14. Bank acts as trustees and Executor of will and documents on behalf of their
customers.
15. Bank acts as the correspondent and representative of its customers, other
banks and financial institutions.
16. The Bank collects and makes payments of Bills of Exchange on behalf of its
customers.
17. The bank makes payments and collects in respect of subscriptions, insurance
premiums, rents, salaries etc, and also receives pension dividends and payment
of utilities bills on behalf of their customers.
18. Bank advances loans and extend financial advices to its customers.
19. Bank Discounts Bills.
20. Bank purchases and sells stock exchange securities.
Banking
* Introduction of Banking System
* Central Banking
* Bill of Exchange
* Banking in Pakistan
Q.1. Define Bank and
explain that banking system of a country helps in its economic development.
OR
Write short notes on, * Industrial Bank, * Agricultural Bank, * Cooperative
Bank, * Exchange Bank, * Mortgage Bank, * Savings Bank
Meaning of Bank
It is generally said that the word "BANK" has been originated in
Italy. In the middle of 12th century there was a great financial crisis in
Italy due to war. To meet the war expenses, the government of that period
imposed a forced subscribed loan on citizens of the country at the interest of
5% per annum. Such loans were known as Compara, Mintuo etc. The most common
name was Monte. In Germany the word Monte was named as Bank or Banke. According
to some writers, the word Bank has been derived from the word Banke.
It is also said that the word Bank has been derived from the word Banco which
means a banch. The Jews money lenders in Italy used to transact their business
sitting on banches at different market places. When any of them used to feel to
meet his obligations, his banco or banch would be broken by the angry
creditors. The word Bankrupt seems to be originated from broken banco. Since,
the banking system has been originated from money lending business, it is
rightly argued that the word Bank has been originated from the world banco.
Today the word bank is used as a comprehensive term for a number institutions
carrying on certain kinds of financial business. In practice, the work Bank
means which borrows money from one class of people and again lends money to
another class of people for interest or profit.
Definition of Bank
Bank is defined in many ways by various authors in the books on economics and commerce.
It is very difficult to define a bank, because a bank performs multifarious
functions. Different kinds of bank having different functions may be defined in
different ways according to their functions. The evolution of different type of
banks, each specialization in a particular field, gives emphasis on each and
every kind of bank. A general and comprehensive definition to cover all types
of banking institutions would be unscientific and probably impossible. Each
type of bank should have its own definition explaining its specialized
functions. Legislators have understood this difficulty and that is why the Bill
of Exchange Act 1882 (England) defines thus A bank includes a body of persons,
whether incorporated or not, who carry on the business of banking.
From this definition it is clear to us that any institution which performs the
various banking functions may be termed as bank. But in practice it is found
that many banking functions vary from time to time and country to country. It
is not possible on the part of a single bank to perform all the banking
functions at the time. So there originated numbers of specialized banks with
the objective of performing one or more functions. As for example, Central
Bank, Commercial Bank, Industrial Bank, Agricultural Bank, Co-operative Bank
etc., are in the practical field.
Dr. Herbert L. Hart has defined a Banker as A Banker is one who in the ordinary
courses of business honours cheques drawn upon him by persons for whome he
receives money on current account. According to Sir John Paget No one and no
body corporate and otherwise can be a Banker who does not (i) take deposit
accounts (ii) take current accounts (iii) issue and pay cheques drawn upon
himself (iv) collect cheques crossed and uncrossed for his customers.
Hilton Banking Commission defines Bank or Banker in the following words:
Every person, firm or company using in the description or its title, Bank or
Banker or Banking and accepting deposits of money subject to withdrawal by
cheque, draft or order.
Banking Ordinance 1962 (Pakistan) defines Banking as Accepting for the purpose
of lending or investment of deposits of money from public, repayable on demand
or otherwise and withdrawal by cheque, draft, order or otherwise. Vise Sec.
5(1) and 5(B) Banking Co's Ordinance, 1962.
In view of the above definitions, a simple and short definition can be given as
Bank is an institution which deals in money and credit. According to this
precise definition A bank accepts deposits of money in savings and current
accounts at lower rate of interest or profit and gives on credit to needy
persons and businessmen at a higher rate of interest or profit. It also
transfers money for the clients from one city or country to another and also
performs various other agency services for earnings.
Importance of Banking
Bank play a significant role in the economic development. The overall economic
of a country is absolutely dependent on the efficient banking system.
Industrial, agricultural and commercial progress of a country is not possible
without a good banking system. The importance of banking may be stated as
follows:
1. Capital Formation
Economic development depends upon the division of economic resources from
consumption to capital formation. Capital grows out of savings. Banks play the
prime role in accumulating capital by collecting the scatered savings of the
people. Thus banks render a valuable service towards the development of a
country by encouraging the growth of capital.
2. Inexpensive Media of Exchange
Modern Banking provides inexpensive media of exchange. Issuing of currency
notes is a great achievement of modern banking. In addition the cheques issued
on the banks are frequently used instead of money in transacting business. Thus
the cheques economise the use of currency notes.
3. Development of Trade and Industry
Bank utilise their collected funds by advancing loans to commercial and
industrial undertakings. In respect of foreign trade also, banks render a
valuable service by issuing letter of credit etc.
4. Reservoirs of Funds
Banks acts as the reservoirs of money in the country. In times of economic,
crisis the bankers come forward to help the Government by purchasing the
Government securities or by advancing loans.
5. Transfer of Funds
Banks facilitate the transfer of funds from one place to another safely and at
a very cheap cost through bank drafts, mail transfers, telegraphic transfer,
travellers cheque etc.
6. Dealing in Foreign Exchange
Banks deal in foreign exchange by purchasing and selling foreign currencies and
by issuing letters of credit. Foreign remittances of funds are possible only
through banks.
7. Money Market Operations
The structure and ups and downs of money market in the country are largely
dependent on the bankers activities. Under the guidance of the central bank all
the banks in the country do their best for the sound management of money
market.
8. Service to Customers
Banks perform various agency services on behalf of their customers. They
collect or make payments of bills of exchange, dividend, insurance premium etc,
on behalf of their customers. They act as the trustees ore executors of
documents etc. They also extend financial advises to their customers.
Functions of Modern Bank
The following is the list of functions or services rendered by a modern bank:
1. Bank provides inexpensive media of exchange through its cheques etc.
2. Bank keeps deposits of public.
3. Bank finances trade and industry.
4. Bank keeps in capital formation by economic savings.
5. Bank acts as Reservoir of funds.
6. Bank deals in foreign exchange and finances foreign trade.
7. Central Bank issues notes and controls money supply.
8. Central Bank controls credites, exchange and the money market.
9. All the banks participate in the development of money market.
10. Bank facilitates the transfer of funds from one place to another.
11. Specialized banks helps in the development of agriculture and industry.
12. Banks acts as the custodian of customers valuables.
13. Bank acts as underwriters for raising capital or loan by Government, Public
Bodies and Campanies.
14. Bank acts as trustees and Executor of will and documents on behalf of their
customers.
15. Bank acts as the correspondent and representative of its customers, other
banks and financial institutions.
16. The Bank collects and makes payments of Bills of Exchange on behalf of its
customers.
17. The bank makes payments and collects in respect of subscriptions, insurance
premiums, rents, salaries etc, and also receives pension dividends and payment
of utilities bills on behalf of their customers.
18. Bank advances loans and extend financial advices to its customers.
19. Bank Discounts Bills.
20. Bank purchases and sells stock exchange securities.