MATHS PROJECT BANKING INTRODUCTION WHAT IS A BANK? A bank is a financial institution institution licensed by a government. Its primary activities include borrowing and lending money. Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds TYPES OF BANKS Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Commercial bank, Community Banks, Community development banks, Postal savings banks, Private banks, Offshore banks, Savings bank, Building societies and Landesbanks, Ethical banks, Islamic banks. FUNCTIONS OF A BANK The economic functions of banks include:
Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash. Netting and settlement of payments – banks act as both collection and paying agents for customers, customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economize on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical geographical areas, reducing the cost of settlement between them. Credit intermediation – banks borrow and lend back-to-back on their own account as middle men Credit quality improvement – banks lend money to ordinary commercial commercial and personal borrowers (ordinary (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification diversification of the bank's assets and capital which provides a buffer to absorb losses
without defaulting on its obligations. obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically economically subordinated position. Maturity transformation transformation – banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets).
BANK ACCOUNTS Savings accounts are accounts maintained by retail financial institutions institutions that pay interest but can not be used directly as money ( for example, by writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. A revolving account is a type of debt account where the outstanding balance balance does not have to be paid in full every month by the borrower to the lender. The borrower may be required to make a minimum payment, based on the balance amount. The most common example of a revolving account is a credit card. Deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance balance is recorded as a liability for the bank, and represents the amount owed by the bank to the customer. Some banks charge a fee for this service, while others may pay the customer interest on the funds deposited. A passbook or bbook is a paper book used to record bank transactions transactions on a deposit account. Depending on the country or the financial institution, institution, it can be of the dimensions of a chequebook or a passport. passport.
Traditionally, a passbook is used for accounts with a low transaction transaction volume, such as a savings account. The bank teller or postmaster writes, by hand, the date and amount of the transaction, the updated balance, and enter his or her initials. In the late 20th century, small dot matrix or inkjet printers were introduced to update the passbook at the account holder's convenience, either at an automated teller machine or a passbook printer, either in a selfserve mode, by post, or in a branch.
