Theory question 109
Financial InstitutionsSection B (answer four questions only from this section)
(a) Distinguish between: (i) a mortgage bank and a merchant bank. (ii) a commercial bank and a development bank.
(b) Explain any four functions of commercial banks.
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(a)(i) A mortgage bank gives long-term loans for building or buying houses, using the property as security; a merchant bank gives medium- and long-term finance to businesses, accepts bills of exchange, underwrites new share issues and advises firms.
(ii) A commercial bank accepts deposits from the public and gives mainly short-term loans and overdrafts for profit; a development bank gives long-term loans for development projects in particular sectors (industry, agriculture) and does not usually take deposits from the public.
(b) Any four: accept deposits; give loans and overdrafts; operate the cheque system; credit creation; safe keeping of valuables; foreign exchange services; act as agents (paying bills, standing orders); advise customers; discount bills of exchange.
Explain each function, not just list it.