Tuesday, 26 November 2013


What is Bank? Explain its functions.

The term bank is derived from Italian word 'Banco' which means a bench. Previously Italian gold smith used to perform the monetary task sitting on the bench not in the market. Therefore, the term banco was used to denote monetary transactions. Generally bank is a kind of financial institution which collects deposits from customer and lends loan to the needy person and organisation. In conclude we can say that bank which is established to accept deposit and grant loan to the industrial, individuals and traders with a view to earn profit is named as bank.Its functions of a bank are given below:

a)Accept deposit: Bank accepts deposit from the customer by opening of saving a/c, current account and fixed deposit account. It can give interest only in the saving and fixed deposit account where as it does give interest on current account. So it collects small deposit from customer.

B)Exchanges foreign currency: after taking permission from the central bank, bank exchange foreign currency by considering the directions provided by central bank. It can exchange foreign currency into local currency and vice versa.

C)Provides Loan: Bank provides short term, mid-term and long term loan to needy people and organisation for specific purpose against the security deposit of diamond, silver, gold, land, building and other stock. It changes interest on loan which is higher than the interest provided by them on deposit.

D) Open letter of credit (L.C): Bank opens L.C which helps to develop the foreign trade. L.C is open only in the foreign trade which is the act of providing guarantee to the foreign businessman on behalf of local business man.

E) Transfer money: bank transfer the money as per the demand of customers from one place to another place on the basic of accounts with the help of draft or T.T and so on. It takes commission for the money.