Week 5-7

Exercise #3

1. List down the Primary Functions of Commercial Banks.

 Acceptance of deposits.
 Advancing loans.
 Creation of credit.
 Clearing of cheques.
 Financing foreign trade.
 Remittance of funds.
2. Give examples for each primary functions of commercial banks.
 Acceptance of deposits- When someone personally opens an account to
deposit their money to a bank and it will carry a rate of interest and can be
withdrawn eventually.
 Advancing loans- The bank can offer loans to the borrowers and charge
them with interest as time goes by. The money that they will lend is from
the money of the depositors.
 Creation of credit- The bank doesn’t release the money in cash but rather
they open an account for the borrower. From this account, the borrower
will be able to use the money that they have borrowed.
 Clearing of cheques- is the process of moving cash (or its equivalent) from
the bank on which a cheque is drawn to the bank in which it was
deposited, usually accompanied by the movement of the cheque to the
paying bank, either in the traditional physical paper form or digitally under
a cheque truncation system.