Banks and Money

Basic Functions of Banking
The basic functions of banking are:

  1. The collection of funds from the public.

  2. The safeguarding of those funds.

  3. The transfer of those funds from one person to another without their leaving the bank (this is done by means of cheques or automatic transfer through the banking system, or via the Internet etc)

  4. The lending of that money to other parties for a return or reward called interest.

Loans made by a bank are based on the amount of funds held by the bank at any time, after taking into account sums that must be held in reserve in case the owners of the funds require them from time to time. The loans are, of course, made with proper security in place in case there is default. The interest received is shared between the bank (i.e. their income for managing those funds) and the true owner. (The true owner’s reward is a share of the interest, which is paid to him/her for not using his/her money.)

A bank is therefore an institution that deals in money, as well as providing other financial services. They accept deposits of mo...

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