Banks and Banking Homework Help

Banks always play an important role in the economic development of the either it be a developed countries such as Japan or the developing countries with the emerging economies of the world like India.

A Bank is defined as a Financial Institution and a Financial Intermediary that accepts deposits and channels those deposits into the activities of lending , either directly by loaning or indirectly through capital markets.

Every country of the world have its own definition of the term “Bank”. In India, according to the Banking Regulation Act (BR Act), 1949, sec 5(c) of the BR act, “a banking company is a company which transacts the business of banking.” And also according to the Sec 5 (b) of the Banking Regulation Act defines banking as “ The financial institute accepting the money ,for the purpose of lending or investment , deposits of money from the public, which is repayable on the demand by the public in form of cash , or is withdrawal is made ,through cheques or drafts ”.

Banks plays a very important role in the emerging economies for the following three reasons:

a) Banks take a leading role in developing other financial intermediaries and markets.

b) The Corporate sector depends heavily on banks to meet its financial needs.

c) In the emerging economy, banks cater to the needs of a huge number of savers from the household sector, which prefer assured income and liquidity and safety of funds, to manage the financial risks.

The business conducted or the services offered by a bank is banking. In general, the business activity of accepting and safeguarding money owned by other individuals and entities and then lending out this money in order to earn profit is banking. There are three major banking activities are :

i) Maintaining deposit accounts including current accounts.

ii) Issue and pay cheques.

iii) Collection of cheques for the customers of banks. A bank generates revenue in a variety of ways which includes the interest, transaction fees and financial advice.

The main method is by charging interest on the amount it lends to its customers .The bank gains it profits from the difference between the level of interest it pays for deposits and the other sources of funds like bonds ,fixed deposits ,etc, and the level of interest it charges in its lending activities.