1. COMMERCIAL BANKS
1.1. Forms
1.1.1. Cash
1.1.1.1. ATM accounts
1.1.2. Checking accounts (demand deposits)
1.1.2.1. is a bank deposit from which withdrawals may be made without notice
1.1.3. Savings accounts (time deposits)
1.1.3.1. is a bank deposit from which withdrawals may be made only after advance notice or at a specified future date
1.1.4. NOW accounts
1.1.4.1. is an interest-earning bank account whereby the owner may write drafts against the money held on deposit
1.1.5. Share draft accounts
1.1.5.1. checking accounts offered by credit unions
1.2. Funtions
1.2.1. Accepting deposits
1.2.2. Giving loans
1.2.3. Overdraft
1.2.4. Discounting of Bills of Exchange
1.2.5. Investment of Funds
1.2.6. Agency Functions
1.2.7. Besides the functions mentioned above, banks perform many other functions of general utility
1.3. Profit
1.3.1. Commercial Banks earn profits based on the difference between offer rates and bid rates
1.3.1.1. Bid rates (borrowing rates): the interest rates that commercial banks pay to depositors
1.3.1.2. Offer rates (lending rates): the interest rates that commercial banks charge for loans to businesses and individuals.
2. OTHER FINANCIAL INSTITUTIONS AND THEIR FUNCTIONS
2.1. Savings institutions
2.1.1. Forms
2.1.1.1. Mutual savings banks
2.1.1.2. Savings and loans associations
2.1.1.3. Savings department in commercial banks
2.1.2. Funtion
2.1.2.1. These institutions take the money for which people have no immediate need and place it in personal savings deposits.
2.1.3. Request
2.1.3.1. Depositors give notice of intent to withdraw funds
2.2. Trust funds
2.2.1. Funtion
2.2.1.1. Trust companies and the trust departments of commercial banks invest the funds of people with financial security who want to provide income for their families. The money deposited in these institutions is invested in many different types of securities providing an assured return
2.3. Insurance companies
2.3.1. Funtion
2.3.1.1. The purpose of insurance companies is to allow people to pool their resources to minimize the risk associated with accident, sickness, death, and other unpredictable circumstances
3. THE CENTRAL BANK
3.1. Definition
3.1.1. Foremost monetary institution in a market economy
3.1.2. These are usually government-owned institutions
3.1.3. The responsibility of the central bank is for the national interest.
3.2. Functions
3.2.1. They serve as the government’s banker
3.2.1.1. Collecting and disbursing government income
3.2.1.2. Managing the issues and redemption of government debts
3.2.1.3. Advising the government on all matters pertaining to financial activities
3.2.1.4. Making loans to the government
3.2.2. They act as the banker of the banking system
3.2.2.1. Holding and transfering banks’ deposits
3.2.2.2. Supervising their operations
3.2.2.3. Acting as a lender of last resort
3.2.2.4. Providing technical and advisory services
3.2.3. They regulate the monetary system for both domestic & international policy goals
3.2.3.1. Using a variety of direct and indirect controls over the financial institutions.
3.2.4. They issue the nation’s currency
3.2.4.1. Coins and notes that circulates as the national currency are usually the liability of the central bank
3.3. Monetary policy tools
3.3.1. Reserve requirement
3.3.1.1. RR represents the minimum percentage of customer deposits that a bank should hold as a reserve
3.3.2. Open market operation
3.3.2.1. OMO is a place where central bank buys and sells securities from member bank
3.3.3. Interest rates
3.3.3.1. Interest rate is the amount a lender charges a borrower and is a percentage of the principal-the amount loaned
3.3.3.2. Raising interest rates slows growth, preventing inflation in contractionary monetary policy.
3.3.3.3. Lowering rates stimulates growth, preventing or shortening a recession in term of expansionary monetary policy.