Commercial bank

A commercial bank (or business bank) is a type oI Iinancial institution and intermediary. It is a
bank that provides transactional, savings, and money market accounts and that accepts time
deposits.
AIter the implementation oI the GlassSteagall Act, the U.S. Congress required that banks
engage only in banking activities, whereas investment banks were limited to capital market
activities. As the two no longer have to be under separate ownership under U.S. law, some use
the term "commercial bank" to reIer to a bank or a division oI a bank primarily dealing with
deposits and loans Irom corporations or large businesses. In some other jurisdictions, the strict
separation oI investment and commercial banking never applied. Commercial banking may also
be seen as distinct Irom retail banking, which involves the provision oI Iinancial services direct
to consumers. Many banks oIIer both commercial and retail banking services.
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ndustrial Bank

A Iinancial institution with a limited scope oI services. Industrial banks sell certiIicates
that are labeled as investment shares and also accept customer deposits. They then invest
the proceeds in installment loans Ior consumers and small businesses. These banks are
also known as Morris banks or industrial loan companies.


Industrial banks diIIer Irom commercial lenders because they accept deposits. They also
diIIer Irom commercial banks because they do not oIIer checking accounts. Furthermore,
the loans oIIered by industrial banks are oIten secured by a third party who acts as
guarantor Ior the loan.

Investopedia explains


ricultural bank

A bank that lends money to Iarmers, oIten over a long period oI time and at low rates oI interest.


$avins bank
A savins bank is a Iinancial institution whose primary purpose is accepting savings deposits. It
may also perIorm some other Iunctions.
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Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the
currency, regulates the money supply, and controls the interest rates in a country. Central banks
oIten also oversee the commercial banking system oI their respective countries. In contrast to a
commercial bank, a central bank possesses a monopoly on printing the national currency, which
usually serves as the nation's legal tender.
The primary Iunction oI a central bank is to provide the nation's money supply, but more active
duties include controlling interest rates, and acting as a lender oI last resort to the banking sector
during times oI Iinancial crisis. It may also have supervisory powers, to ensure that banks and
other Iinancial institutions do not behave recklessly or Iraudulently.
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unctions of a central bank:
D1nI ]uDr!1oD: o] rD!1nI InDI n1 n: ]oIIo+::
. Supervision oI the banking system
2. Advising the government on monetary policy
3. Issue oI banknotes
4. Acting as banker to other banks
5. Acting as banker to government
6. Raising money Ior the government
7. Controlling the nation`s currency reserves
8. Acting as 'lender oI last resort
9. Liaising with international bodies
et`s look at little brief of some of them:
1. $upervision of the bankin system: Central bank supervises the banking system oI the
country. Central may be responsible Ior banking system. They collect inIormation Irom
commercial bank and take necessary decision by two ways- a) bank examine and b) bank
regulation.

2. dvisin the overnment on monetary policy: The decision on monetary policy may be
taken by the central bank. Monetary policy reIers to interest rates and money supply. The central
bank will corporate with the government on economic policy generally and will produce advice
on monetary policy and economic matters, including all the statistics.

3. ssue of banknotes: The central bank controls the issue oI banknotes and coins. Most
payment these days does not involve cash but cheques, standing order, direct debit, credit cards
and so on. Nevertheless, cash is important as bank`s cash holdings are a constraint on creation oI
credit, as we have seen.


4. ctin as banker to other banks: The Central bank will act as banker to the other banks in
the country. As well as holding accounts with international bodies like IMF World bank. It is a
common habit Ior the central bank to insist that the other banks hold non-interest bearing
reserves with in proportion to their deposit.


5. ctin as banker to overnment: Normally a central bank acts as the government`s banker.
It receives revenues Ior Taxes and other income and pay out money Ior t6he government`s
expenditure. Usually, it will not lend to the government but will help the government to borrow
money by the sales oI its bill and bonds.


6. Raisin money for the overnment: The government Treasury bill and bond markets are
covered by the central bank. While sometimes the treasury or ministry oI Iinance handle

unctions of the Commercial Bank:
Commercial bank's Iunction can be categorized into two types:
1. Primary or Principal unction
2. $econdary or ncillary function
1. Primary or Principal unction:
!rimary or principal Iunctions oI a commercial bank are three types:
. cceptance of Deposit
B. endin
C. nvestment
cceptance of Deposit: An important Iunction oI commercial banks is to attract deposit Irom
the public. Those people who have cash account and want their saIety; they deposit that amount
oI banks. Commercial banks accept deposits every class and source and take responsibility to
repay the deposit in the same currency whenever they are demanded by depositors.

B endin: Another Iunction oI commercial banks is to make loans and advance out oI the
deposit receive in various Iorms. Bank Apply the accumulated public deposits to productive uses
by way oI loans and advances, overdraIt and cash credits against approved securities.

C nvestment: Now a day`s commercial banks are also involved in Investment. Generally
investment means long term and medium term investments.


2. $econdary or ncillary function:
Secondary or Ancillary Iunctions oI Commercial Banks are two types:
. ency $ervices

) Collection and !ayment oI Cheques
2) Standing Instruction
3) Acting as correspondence
4) Collecting oI bills- electricity, gas, WASA, telephone etc.
5) !urchase and Sales oI stocks/ share-act as a banker to issue

B. Miscellaneous or General $ervices:
) SaIe Custody- bailee
2) Lockers-trustee
3) Remittance Iacilities DD, TT, MT and !
4) Advisory services
5) !roviding Credit reports
6) pening L/C
7) Demand in ForEx/ Travers Cheque only Authorized Dealer branches
8) Complete service in Foreign Trade
9) ther Services: Debit Card, Credit Card, n-line banking SMS banking
) Creation oI Credit: a multiplier eIIect, Deposit creates credit and credit creates deposits
derivative deposit.

Beside these activities, commercial bank may perIorm Iurther tasks, all its activities are guided
by its authority Ior the betterment oI the company or Ior society.

%he role of stock exchanes
Stock exchanges have multiple roles in the economy. This may include the Iollowing:
Raisin capital for businesses
The Stock Exchange provides companies with the Iacility to raise capital Ior expansion
through selling shares to the investing public.
Mobilizin savins for investment
When people draw their savings and invest in shares (through a I! or the issuance oI new
company shares oI an already listed company), it usually leads to rational allocation oI
resources because Iunds, which could have been consumed, or kept in idle deposits with
banks, are mobilized and redirected to help companies' management boards Iinance their
organizations. This may promote business activity with beneIits Ior several economic sectors
such as agriculture, commerce and industry, resulting in stronger economic growth and
higher productivity levels oI Iirms. Sometimes it is very diIIicult Ior the stock investor to
determine whether or not the allocation oI those Iunds is in good Iaith and will be able to
generate long-term company growth, without examination oI a company's internal auditing.
acilitatin company rowth
Companies view acquisitions as an opportunity to expand product lines, increase distribution
channels, hedge against volatility, increase its market share, or acquire other necessary
business assets. A takeover bid or a merger agreement through the stock market is one oI the
simplest and most common ways Ior a company to grow by acquisition or Iusion.
Profit sharin
Both casual and proIessional stock investors, as large as institutional investors or as small as
an ordinary middle class Iamily, through dividends and stock price increases that may result
in capital gains, share in the wealth oI proIitable businesses. UnproIitable and troubled
businesses may result in capital losses Ior shareholders.
Corporate overnance
By having a wide and varied scope oI owners, companies generally tend to improve
management standards and eIIiciency to satisIy the demands oI these shareholders, and the
more stringent rules Ior public corporations imposed by public stock exchanges and the
government. Consequently, it is alleged that public companies (companies that are owned by
shareholders who are members oI the general public and trade shares on public exchanges)
tend to have better management records than privately held companies (those companies
where shares are not publicly traded, oIten owned by the company Iounders and/or their
Iamilies and heirs, or otherwise by a small group oI investors).
However, when poor Iinancial, ethical or managerial records are known by the stock
investors, the stock and the company tend to lose value. In the stock exchanges, shareholders
oI underperIorming Iirms are oIten penalized by signiIicant share price decline, and they tend
as well to dismiss incompetent management teams.
Creatin investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to
both the large and small stock investors because a person buys the number oI shares they can
aIIord. ThereIore the Stock Exchange provides the opportunity Ior small investors to own
shares oI the same companies as large investors.
Government capital-raisin for development projects
Governments at various levels may decide to borrow money to Iinance inIrastructure projects
such as sewage and water treatment works or housing estates by selling another category oI
securities known as bonds. These bonds can be raised through the Stock Exchange whereby
members oI the public buy them, thus loaning money to the government. The issuance oI
such bonds can obviate the need, in the short term, to directly tax citizens to Iinance
developmentthough by securing such bonds with the Iull Iaith and credit oI the
government instead oI with collateral, the government must eventually tax citizens or
otherwise raise additional Iunds to make any regular coupon payments and reIund the
principal when the bonds mature.
Barometer of the economy
At the stock exchange, share prices rise and Iall depending, largely, on market Iorces. Share
prices tend to rise or remain stable when companies and the economy in general show signs
oI stability and growth. An economic recession, depression, or Iinancial crisis could
eventually lead to a stock market crash. ThereIore the movement oI share prices and in
general oI the stock indexes can be an indicator oI the general trend in the economy.

$peculation
,aln arLlcle SpeculaLlon
The stock exchanges are also Iashionable places Ior speculation. In a Iinancial context, the
terms "speculation" and "investment" are actually quite speciIic. For instance, although the
word "investment" is typically used, in a general sense, to mean any act oI placing money in
a Iinancial vehicle with the intent oI producing returns over a period oI time, most ventured
moneyincluding Iunds placed in the world's stock marketsis actually not investment but
speculation.

unctions of $tock Exchane
. Continuous and ready market for securities
Stock exchange provides a ready and continuous market Ior purchase and sale oI securities. It
provides ready outlet Ior buying and selling oI securities. Stock exchange also acts as an
outlet/counter Ior the sale oI listed securities.



. Facilitates evaluation of securities
Stock exchange is useIul Ior the evaluation oI industrial securities. This enables investors to
know the true worth oI their holdings at any time. Comparison oI companies in the same industry
is possible through stock exchange quotations (i.e price list).

. Encourages capital formation
Stock exchange accelerates the process oI capital Iormation. It creates the habit oI saving,
investing and risk taking among the investing class and converts their savings into proIitable
investment. It acts as an instrument oI capital Iormation. In addition, it also acts as a channel Ior
right (saIe and proIitable) investment.
. Provides safety and security in dealings
Stock exchange provides saIety, security and equity (justice) in dealings as transactions are
conducted as per well deIined rules and regulations. The managing body oI the exchange keeps
control on the members. Fraudulent practices are also checked eIIectively. Due to various rules
and regulations, stock exchange Iunctions as the custodian oI Iunds oI genuine investors.
. Regulates company management
Listed companies have to comply with rules and regulations oI concerned stock exchange and
work under the vigilance (i.e supervision) oI stock exchange authorities.
. Facilitates public borrowing
Stock exchange serves as a platIorm Ior marketing Government securities. It enables government
to raise public debt easily and quickly.
. Provides clearing bouse facility
Stock exchange provides a clearing house Iacility to members. It settles the transactions among
the members quickly and with ease. The members have to pay or receive only the net dues
(balance amounts) because oI the clearing house Iacility.
8. Facilitates bealtby speculation
Healthy speculation, keeps the exchange active. Normal speculation is not dangerous but
provides more business to the exchange. However, excessive speculation is undesirable as it is
dangerous to investors & the growth oI corporate sector.
9. Serves as Economic Barometer
Stock exchange indicates the state oI health oI companies and the national economy. It acts as a
barometer oI the economic situation / conditions.


. Facilitates Bank Lending
Banks easily know the prices oI quoted securities. They oIIer loans to customers against
corporate securities. This gives convenience to the owners oI securities.

(,exlcan SLock Lxchange ,exlco ClLy)





BBGRPHY

. www.investopedia.com/terms/i/industrial-bank.asp#ixzz"USB3ekS.
2. www.investopedia.com/terms/i/industrial-bank.asp#axzz"UR8DLz
3. http://bbamba.inIo/Articles/Business/Functions-oI-CentralBanks.
5. http://bbamba.inIo/Articles/Business/Functions-oI-CommercialBanks.
4. http://kalyan-city.blogspot.com/2//Iunctions-oI-stock-exchange-
main.html
5. www. Google.com
6. en.wikipidia.org/wiki

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Class lecture (Chapter # 2)