Money And Banking

6 Pages 1499 Words

nks:
Banks are authorized institutions and perform four functions.

They accept deposits,
They make loans,
They arrange payment of bills
They provide a number of customer services.

Other Services:
Banks have cash points; exchange foreign currency and issue travellers' cheques; provide night safes and store valuables; execute (carry out) wills and trusts; and factor (collect) debts.



Credit Creation:
Some customers leave money in the bank earning interest. A bank can use these idle deposits to make loans to people who then buy goods. Shopkeepers receive extra money which they redeposit with the bank. Some of this redeposited money is left to earn interest and can be re-lent. The bank has therefore created money. If all customers were to try to cash their deposits at once, there would not be sufficient cash. The amount of money the bank can create therefore depends on the ratio of cash to liabilities that they hold. The higher this cash ratio the les...