Theory question 107
Financial Institutions(a) Distinguish between a: (i) mortgage bank and a merchant bank; (ii) 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 buying and building houses, secured on the property; a merchant bank serves businesses, e.g. accepting bills of exchange, issuing and underwriting shares, giving medium-term loans and advice.
(ii) A commercial bank takes deposits from the public, offers current accounts and cheques and gives mainly short-term loans for profit; a development bank gives medium- and long-term loans to finance development projects in agriculture, industry, etc., and does not usually take deposits from the public.
(b) Any four: accepting deposits; lending (loans, overdrafts); creating credit; providing means of payment (cheques, transfers, cards); safekeeping of valuables; foreign exchange services; financial advice; acting as agents for customers (standing orders).
Compare who each bank serves and the length of its loans.