The deposits received from the public are the main source of money for

The deposits received from the public are the main

This preview shows page 12 - 13 out of 13 pages.

deposit from the public. The deposits received from the public are the main source of money for commercial bank. The bank will use these deposits to provide loans to investors, purchase fixed properties, purchase stock, and make other investment. a) Current deposits b) Saving deposits c) Fixed deposits 2. To provide loans and advance The provision of loans through current accounts, overdraft facilities, and bill of exchange discount are the most profitable activities of commercial bank. Commercial bank provides loans by crediting an amount of money into the customer’s current account. A fairly high interest rate will be charged on the loan amount. Commercial bank will also provide overdraft loans by allowing customers to withdraw a sum of money exceeding the balance in their current amount. The commercial bank will determine the maximum overdraft amount that the customer can withdraw. Interest will charged on the amount of overdraft withdraw, and not the total overdraft amount that is approved. Commercial banks will also provide loans by discounting bills of exchange owned by customers. Commercial bank will provide a cash advance to customer and will receive a commercial from the discounted bills of exchange. The commercial banks will receive payment from the bill drawer when the bill reaches its maturity period. 3. To make and receive payments Commercial banks will receive payment on behalf of current account holder to order parties that produce cheques written by the current account holder. Commercial banks also receive payment on behalf of current account holder from other parties by clearing cheques deposited into the customer’s current account. 4. To issue traveler’s cheques and bank drafts Commercial bank sells traveler’s cheques to customers that travel overseas. Commercial bank also provide bank draft for customer who wish to make payment guaranteed by the bank. 5. To conduct investment activities
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6.To provide other services
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  • Fall '15
  • central banks, Fiat Money

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