WHAT IS A BANK, CLASSIFY AND DISCUSS BANKS. Bank: a bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.

1. SUBJECT:
Money and Banking
SUBMITTED TO:
Ma’am Shazia Kazi
SUBMITTED BY:
Varda Shaikh___1310-bba027
ASSIGNMENT SUBMISSION DATE:
2nd November 2017

2. 1. WHAT IS A BANK? CLASSIFY AND DISCUSS BANKS.
Bank: a bank is a financial institution that accepts deposits from the public and creates
credit. Lending activities can be performed either directly or indirectly through capital
markets.
Classification of banks:
 UNIVERSAL BANK:
It is a financial supermarket where all financial products are sold under one roof. it is a
system of banking where bank undertake a blanket of financial services like investment
banking, commercial banking, development banking, insurance and other financial services
including functions of merchant banking, mutual funds, factoring, housing finance etc.
 DEVELOPMENT BANK:
Development bank is essentially a multi-purpose financial institution with a broad
development outlook. A development bank may, thus, be defined as a financial institution
concerned with providing all types of financial assistance (medium as well as long term) to
business units, in the form of loans, underwriting, investment and guarantee operations, and
promotional activities — economic development in general, and industrial development, in
particular.
 SMALL FINANCE BANK:
Small finance banks are a type of niche banks in India. The main purpose of the small banks
will be to provide a whole suite of basic banking products such as bank deposits and supply
of credit, but in a limited area of operation. The objective for these Small Banks is to
increase financial inclusion by provision of savings vehicles to under-served and unserved
sections of the population, supply of credit to small farmers, micro and small industries, and
other unorganized sector entities through high technology-low cost operations.
 PAYMENT BANK:
A payments bank is like any other bank, but operating on a smaller scale without involving
any credit risk. In simple words, it can carry out most banking operations but can’t advance
loans or issue credit cards.

3. 2. DISCUSS THE ROLE OF BANKS IN THE ECONOMIC DEVELOPMENT OF A
COUNTRY.
The role of banks in economic development is to remove the deficiency of capital by stimulating
savings and investment. The serious capital deficiency in under-developed countries is reflected
in the small amount of capital equipment per worker and in limited knowledge, training and
scientific advance.
Bank provides funds for business as well as personal needs of the individuals. They play a
significant role in the economy of a nation. Help raising the standards of people by providing
loans to buy goods, houses and automobiles etc which ensures the flow of money in the market
and hence the economy will grow.
3. DEFINE COMMERCIAL BANK. DISCUSS THE SECONDARY FUNCTIONS OF A
COMMERCIAL BANK.
Commercial bank: A commercial bank is where most people do their banking, as opposed to
an investment bank. Commercial banks make money by providing loans and earning interest
income from those loans.
Secondary functions:
1. Overdraft Facility:
It refers to a facility in which a customer is allowed to overdraw his current account upto an
agreed limit. This facility is generally given to respectable and reliable customers for a short
period. Customers have to pay interest to the bank on the amount overdrawn by them.
2. Discounting Bills of Exchange:
It refers to a facility in which holder of a bill of exchange can get the bill discounted with
bank before the maturity. After deducting the commission, bank pays the balance to the
holder. On maturity, bank gets its payment from the party which had accepted the bill.
3. Agency Functions:
Commercial banks also perform certain agency functions for their customers. For these
services, banks charge some commission from their clients.
4. WHAT IS A CENTRAL BANK? DISCUSS ITS FUNCTIONS AS A BANKER'S
BANK.

4. Central bank: A central bank, reserve bank, or monetary authority is an institution that
manages a state's currency, money supply, and interest rates.
Functions of a central bank may include:
 Implementing monetary policies.
 Setting the official interest rate – used to manage both inflation and the country's exchange rate –
and ensuring that this rate takes effect via a variety of policy mechanisms.
 Controlling the nation's entire money supply.
5. DIFFERENTIATE BETWEEN A CENTRAL BANK AND A COMMERCIALBANK.
Commercial bank: A commercial bank is where most people do their banking, as opposed to
an investment bank. Commercial banks make money by providing loans and earning interest
income from those loans.
Central bank: A central bank, reserve bank, or monetary authority is an institution that
manages a state's currency, money supply, and interest rates.
SHORT NOTES
1. TYPES OF BANK ACCOUNTS.
 Checking account: A checking account offers easy access to your money for your daily
transactional needs and helps keep your cash secure. Customers can use a debit card or
checks to make purchases or pay bills. Accounts may have different options or packages to
help avoid certain monthly service fees. To determine the most economical choice, compare
the benefits of different checking packages with the services you actually need.
 Savings account: A savings account allows you to accumulate interest on funds you’ve
saved for future needs. Interest rates can be compounded on a daily, weekly, monthly, or
annual basis. Savings accounts vary by monthly service fees, interest rates, method used to
calculate interest, and minimum opening deposit. Understanding the account’s terms and
benefits will allow for a more informed decision on the account best suited for your needs.
 Certificate of Deposit (CD): Certificates of deposit, or CDs, allow you to invest your money
at a set interest rate for a pre-set period of time. CDs often have higher interest rates than
traditional savings accounts because the money you deposit is tied up for the life of the

5. certificate – which can range from a few months to several years. Be sure you do not need to
draw on those funds before you open a CD, as early withdrawals may have financial
penalties.
 Money market account: Money market accounts are similar to savings accounts, but they
require you to maintain a higher balance to avoid a monthly service fee. Where savings
accounts usually have a fixed interest rate, these accounts have rates that vary regularly based
on money markets. Money market accounts can have tiered interest rates, providing more
favorable rates based on higher balances. Some money market accounts also allow you to
write checks against your funds, but on a more limited basis.
 Individual Retirement Accounts (IRAs): IRAs, or individual retirement accounts, allow
you to save independently for your retirement. These plans are useful if your employer
doesn’t offer retirement benefits or you want to save more than your employer-sponsored
plan allows. These accounts come in two types: the traditional IRA and Roth IRA. The Roth
IRA is popular because the funds can be withdrawn tax-free in many situations. Others prefer
traditional IRAs because these contributions are tax-deductible. Both accounts have
contribution limits and other requirements you may need to discuss with your tax advisor
before choosing your account.
2. PROCEDURE TO OPEN CURRENT/SAVING ACCOUNT
 Decide the type of bank account you want to open.
There are several types of bank accounts such as Saving Account, Recurring Account, Fixed
Deposit Account and Current Account. So a decision regarding the type of account to be
opened must be taken.
 Approach any Bank of choice & meet its Bank Officer
Once the type of account is decided, the person should approach a convenient bank. He has
to meet the bank officer regarding the opening of the account. The bank officer will provide
a proposal form (Account Opening Form) to open bank account.
 Fill up Bank Account Opening Form - Proposal Form.
The proposal form must be duly filled in all respects. Necessary details regarding name,
address, occupation and other details must be filled in wherever required. Two or three
specimen signatures are required on the specimen signature card. If the account is opened in

6. joint names, then the form must be signed jointly. Now days the banks ask the applicant to
submit copies of his latest photograph for the purpose of his identification.
 Give References for Opening your Bank Account
The bank normally required references or introduction of the prospective account holder by
any of the existing account holders for that type of account. The introducer introduces by
signing his specimen signature in the column meant for the purpose The reference or
introduction is required to safeguard the interest of the bank.
 Submit Bank Account Opening Form and Documents
The duly filled in proposal form must be submitted to the bank along with necessary
documents. For e.g. in case of a joint stock company, the application form must accompany
with the Board's resolution to open the account. Also certified copies of articles and
memorandum of association must be produced.
 Officer will verify your Bank Account Opening Form.
The bank officer verifies the proposal form. He checks whether the form is complete in all
respects or not. The accompanying documents are verified. If the officer is satisfied, then he
clears the proposal form.
 Deposit initial amount in newly opened Bank Account
After getting the proposal form cleared, the necessary amount is deposited in the bank. After
depositing the initial money, the bank provides a pass book, a cheque book and pay in slip
book in the case of savings account. In the case of fixed deposits, a fixed deposit receipt is
issued. In the case of current account, a cheque book and a pay in slip book is issued. For
recurring account, the pass book and a pay in slip book is issued.
3. Overdraft.
An overdraft occurs when money is withdrawn from a bank account and the available
balance goes below zero. In this situation the account is said to be "overdrawn". If there is a
prior agreement with the account provider for an overdraft, and the amount overdrawn is
within the authorized overdraft limit, then interest is normally charged at the agreed rate. If
the negative balance exceeds the agreed terms, then additional fees may be charged and
higher interest rates may apply.

7. The first overdraft facility was set up in 1728 by the Royal Bank of Scotland. The merchant
William Hog was having problems in balancing his books and was able to come to an
agreement with the newly established bank that allowed him to withdraw money from his
empty account to pay his debts before he received his payments. He was thus the first
recipient of cash credit from a bank in the world.
Within decades, the advantages of this system, both for customers and banks, became
apparent, and banks across the United Kingdom adopted this innovation. With the onset of
industrialization, new businesses needed an easy form of credit to jump-start their activities,
without having to take out loans on securities they didn't necessarily have. The importance
of this new financial innovation was recognized by the philosopher David Hume who
described it in one of his essays as 'one of the most ingenious ideas that has been executed
in commerce'.
4. Methods of note issue
 Fixed Fiduciary System
Under this method of note issue, central bank of the country is allowed to issue currency
notes of a specified amount without presenting gold and silver to cover it. Once this
limit is reached, additional amount of notes can be issued by hundred percent backed by
gold. The advantages claimed for this method is that it gives elasticity in the money
supply. It also grant maximum care due to the excess issuance of notes of the “Fiduciary
Limit” except they are sheltered by hundred percent of gold. The possibility of inflation
is effectively checked. However, this system is objected on the ground that judiciary
limit is open to change by amendment in the Act and is raised will lose the confidence of
the people.
 Maximum Fiduciary System
According to this method of note issue, the fiduciary system’s limit is fixed above the
normal requirements of the country. Beyond the maximum no note is issued without
legal sanction. This system is defective in the sense that, if the limit is too low, the

8. currency system becomes inelastic and if the limit is too high, there is danger of over
issue of notes.
 Proportional Reserve System
Under this method of note issue, the central bank is mandatory by law to maintain a
permanent percentage from 25% to 40% adjacent to issuance of notes. It is often called
percentage system. The remainder of the notes is to be covered by trade bills and
government securities. This system is easily operated and it gives needed elasticity to the
currency note system. But the system is uneconomic as huge amount of gold is kept idle
as reserve. Moreover, the value of money is not stable, but this system is elastic up to a
certain limit.
 Minimum reserve system
Under this method of note issue, the reserve limit is permanently fixed and the volume
of the notes has no connection with the amount of the reserve. To meet the ever-
increasing demand for currency, government can issue notes up to any amount against
the reserve but it is faced with the danger of the inflation.