The Central & Commercial Banks

Group 1
Definition of a Central Bank
A central bank is an institution that is responsible for managing a country's
money supply and interest rates. It is often tasked with maintaining price
stability, full employment, and economic growth. Central banks typically have a
monopoly on the issuance of their country's currency, and they often act as a
lender of last resort to commercial banks during times of financial crisis. Central
banks are typically independent of the government, although they may be
subject to oversight by the government or parliament.
Functions of a Central Bank
● It is authorized by the
government to be the sole
supplier of the country's
notes and coins- In the
economy of a country, the
central bank is the
exclusive supplier of new
notes or coins for
consumers to utilize. This
bank also receives and
restores damage notes and
coins.
Functions of a Central Bank
● The central bank controls all commercial
banks to some extent- It is mandatory that
the Central bank stores some amount of
cash deposits received from the
Commercial Banks. If it is absolutely
necessary, the Central Bank can loan a
specified percentage of money to the
Commercial Banks. Occasionally, the
Commercial Banks seek and acknowledge
any advice given by the Central bank.
Commercial Banks also need to report to
the Central Bank about their daily
operations and transactions.
Functions of a Central Bank
● It serves as a banker to the
government- The government's
accounts are managed by the
Central Bank. The Central Bank
houses the deposit accounts of
governments. The established
government accounts are used to
receiving money, paying funds owed
and clear cheques. National debts
(total debts that occurred externally
and internally by a country) incurred
by the Government will be paid off
by the Central Bank. Money is also
funded by the Central to the
Government if necessary during
transactions.
Definition of Commercial Banks
A commercial bank is a type of bank that provides financial services to
businesses and corporations, as well as to individuals. Commercial
banks typically offer services such as checking and savings accounts,
loans, credit cards, and investment services. They are also often
involved in international trade and foreign exchange transactions.
Functions of Commercial Banks
Accepting Deposits: One of the primary functions of a
commercial bank is to accept deposits from individuals
and businesses. Banks offer various types of deposit
accounts, including savings accounts, checking accounts,
and certificates of deposit (CDs).

Making Loans: Commercial banks also make loans to

individuals and businesses. This includes personal loans,
home loans, and business loans. Banks earn interest on
the loans they make, which is a significant source of
revenue.

Issuing Credit Cards: Commercial banks issue credit cards

to individuals and businesses. They earn fees and interest
charges on credit card transactions.
Functions of Commercial Banks
Facilitating International Trade: Commercial banks
facilitate international trade by providing services
such as letters of credit and foreign exchange
transactions. These services help businesses conduct
trade with partners in other countries.

Providing Cash Management Services: Banks provide

cash management services to businesses, including
cash handling, check processing, and wire transfers.
These services help businesses manage their cash
flow more effectively.

Offering Investment Products: Banks offer various

investment products such as mutual funds, annuities,
and retirement accounts. These products help
individuals save and invest for the future.
Functions of Commercial Banks
Providing Financial Advice: Banks offer financial
advice to individuals and businesses. This
includes advice on budgeting, investing,
retirement planning, and estate planning.

Clearing and Settlement of Payments:

Commercial banks act as intermediaries in the
clearing and settlement of payments. They
facilitate the transfer of funds between accounts
and ensure that payments are settled promptly
and efficiently.
The End