MATHS PROJECT

BANKING
INTRODUCTION

WHAT IS A BANK?

A bank is a financial 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; 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, 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 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 and personal
borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes
from diversification of the bank's assets and capital which provides a buffer to absorb losses
without defaulting on its 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
subordinated position.

Maturity 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 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 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 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 on a deposit account.
Depending on the country or the financial institution, it can be of the dimensions of a
chequebook or a passport.

Traditionally, a passbook is used for accounts with a low 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 self-
serve mode, by post, or in a branch.