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Explain the agency functions of commercial banks


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Solution

A commercial bank is a kind of financial organization that carries all the operations related to the deposit and withdrawal of money for the general public, providing loans for investment, etc. These banks are profit-making organizations and do business only to make a profit.

Agency functions of a commercial bank

Commercial banks provide certain services to their customers in return for some commission, these are called agency functions.

Some of the agency functions of a commercial bank are listed below

  • Collection of cheques, bills, and drafts.
  • Payment of interest, installments of loans, insurance premium, etc.
  • Purchase and sale of securities
  • Collection of interest, dividend, etc.
  • Transfer of funds through demand drafts, mail transfer, etc.
  • Purchase and sale of foreign exchange.

Other vital functions of Commercial Bank

The functions of commercial banks are classified into two main categories

(a) Primary functions

  • Accepts deposit
  • Provides loans and Advances
  • Credit Cash

(b) Secondary functions

  • Discounting bills of exchange
  • Overdraft Facility
  • Purchasing and Selling of the Securities
  • Locker Facilities
  • Paying and Gather the Credit – It uses different instruments like a promissory notes, cheques, and bills of exchange

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