Professional Documents
Culture Documents
Money and Credit
Money and Credit
Money and Credit
Banks
An organization where people and businesses can invest or
borrow money, change it to foreign money, etc., or
a building where these services are offered. Some of its
functions are as follows:
Accepting Deposits
Most important function of a bank is to mobilize public
funds. Bank provides safe custody as well as interest to the
depositors.
a)Saving Deposits
Saving deposit account meant for those people who wants to
save for future needs and uncertainties. There is no restriction on
number and amount of withdrawals. Bank provides cheque book,
ATM cum debit card and Internet banking facility. Depositors need
to maintain minimum balance which varies across different
banks.
b) Fix Deposit or Term Deposit
In fixed deposit account, money is deposited for a fixed tenure.
Banks issues a deposit certificate which contains name, address,
deposit amount, withdrawal date, depositor signatures and other
important information.
Depositor can't withdraw money during this period. In case
depositor want to withdraw before maturity, banks levy pre-
mature withdrawal penalty.
c)Current Account
Current accounts are normally opened by businesses. Banks
provide overdraft facility for these accounts by which account
holder can withdraw more money than available bank balance.
This act as a short term loan to meet urgent needs. Bank
charges high rate on interest and charges for overdraft facility
because bank need to maintain a reserve for unknown demands
for overdraft.
Agency Functions
a)Funds Transfer
b)Cheques collection
c)Periodic payments/collection
d) Portfolio management
Utility Functions
a) Issue of draft letter etc: -Letter of
credit acts as an assurance that in case the
borrower defaults in making the payment, bank
will make the payment up to the amount
mentioned in letter of credit
b) Locker facility
c) Underwriting of shares
d) Dealing in foreign exchanges
e) Project reports
f) Social welfare programs
Demand Deposits
A demand deposit consists of funds held in an account from
which deposited funds can be withdrawn at any time from
the depository institution, such as a checking or savings
account, accessible by a teller, ATM or online banking. In
contrast, a term deposit is a type of account that cannot be
accessed for a predetermined period of time.
A ‘demand’ deposit in one, which is withdrawable,
on demand - that is, whenever you want. In India, Current
Accounts & Savings Accounts (in banking terminology —
‘CASA’) are demand deposits. Fixed deposits are not. In the
US, Checking and Savings accounts are demand deposits.
Credit
Credit is a contractual agreement in which a borrower
receives something of value now and agrees to repay
the lender at some date in the future, generally with interest.
Credit also refers to an accounting entry that either
decreases assets or increases liabilities and equity on the
company's balance sheet. Additionally, on the
company's income statement, a debit reduces net income,
while a credit increases net income.
Terms of Credit
i) Interest Rate
Interest rate is the amount charged, expressed as a percentage of
principal, by a lender to a borrower for the use of assets. The assets
borrowed could include cash, consumer goods, and large assets such
as a vehicle or building.
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