Banking

A central bank is the primary source of money supply in an economy through circulation of currency.However, for this purpose, the central bank needs to depend upon the reserves of commercial banks. These reserves of commercial banks are the secondary source of money supply in an economy. The most important function of a commercial bank is the creation of credit. Let us learn the process of credit creation by commercial banks with the help of an example. Suppose you deposit Rs. 10,000 in a bank A, which is the primary deposit of the bank. The cash reserve requirement of the central bank is 10%. In such a case, bank A would keep Rs. 1000 as reserve with the central bank and would use remaining Rs. 9000 for lending purposes. The bank lends Rs. 9000 to Mr. X by opening an account in his name, known as demand deposit account. However, this is not actually paid out to Mr. X. The bank has issued a check-book to Mr. X to withdraw money. Now, Mr. X writes a check of Rs. 9000 in favor o...

A Commercial bank is a type of bank or financial institution that provides services such as accepting deposits, making business loans and offering basic investment products. According to Prof. Kinley," A bank is an establishment which makes individuals such advances of money as may be required and safely made, and to which individuals entrust money when not required by them for use." FUNCTIONS The modern bank performs a large variety of functions and services. Some of the fundamental functions performed by the bank are discussed below:- 1) ACCEPTING DEPOSITS:-   Generally, the banks accept four types of deposits from the public which are as follows: (a)  Current Account or Demand Deposit: Under this account the depositor can withdraw the money whenever he requires it. Normally no interest is paid by the bank because the bank cannot utilise this money in earning and he must keep himself ready to meet the demand of the customer. He must keep cent per cent reserve ...

Central Bank controls credit in two ways:- Quantitative Credit Control and Qualitative credit Control (A) QUANTITATIVE CREDIT CONTROL :- The main objective of quantitative credit control is to control the total volume of bank credit and rate of interest. In other words, those methods by which Central Bank controls the quantity of credit in a country are called Quantitative methods. These methods include:- bank rate,  open Market Operations, Change in CRR and Change in SLR.                                        (1) BANK RATE It is the rate at which the Central Bank rediscounts the first class securities of other banks. With the help of Bank Rate policy the Central Bank controls the credit creation of other banks. Whenever Central Bank wants to control credit in the country it raises the Bank Rate. As a consequence the commercial banks would have to increase it's market rate...

INTRODUCTION The World bank group consists of 3 international institutions - The World Bank itself ( formerly IBRD) and its 2 affiliates - IDA and IFC ( International Development Association and International Finance Corporation). All of them are devoted to the same general objective- The provision of financial and technical assistance for economic development. The World Bank was established in 1945 under the Bretton Woods Agreement of 1944 to assist in bringing about a smooth transition from a war-time to peace-time economy. It is a sister institution of the IMF. MEMBERSHIP The members of the IMF are the members of the World Bank. It had 182 members in 2000. Currently it has 189 members. If a country resigns its membership, it is required to pay back all loans with interest on due dates. If the Bank incurs a financial loss in the years in which a member resigns, it is required to pay its share of the loss on demand. OBJECTIVES The following objectives are assigned by the...

INTRODUCTION The IMF, also called the Fund, is an international monetary institution established by 44 nations under the Bretton Woods Agreement of July 1944. The principal aim was to avoid the economic mistakes of the 1920s and 1930s. It was established to promote economic and financial cooperation among its members in order to facilitate the expansion and balanced growth of world trade. It started functioning from MARCH 1, 1947. In JUNE 1996, the Fund had 181 members. MEMBERSHIP The IMF started with the initial membership of 30 countries. On JUNE 1991 its membership rose to 155. In APRIL 1980 China became the member of IMF. Afterwards in 1992, Russia along with other communist countries became the member of IMF. The current membership of IMF is 189. OBJECTIVES The main objectives of IMF are as follows:- (i) International Monetary Co-Operation: The most important objective of the Fund is to establish international monetary co-operation amongst the various member countr...

Central bank occupies an important place in the monetary and banking system of every country. It is the apex bank of a country. In case of Under Developed countries, it is instrumental in the process of growth. It is the sole agency of note-issue in a country. In India, Reserve Bank, In England, Bank of England and In America, Federal Reserve System operate as central banks. DEFINITION According to Prof. Samuelson" Every Central Bank has one function. It operates to control economy, supply of money and credit." FUNCTIONS The functions of Central bank are as under:- 1) ISSUING OF NOTES:- Central bank now-a-days has the monopoly of note-issue in every country. The currency notes printed and issued by the central bank are declared unlimited legal tender throughout the country. It has been given exclusive monopoly of note-issue in the interest of uniformity, better control, elasticity, supervision, and simplicity. It will also avoid the possibility of over-issue by...