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Money And Banking

Question
CBSEENEC12012745
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Define a bank.

Solution
Definition of a Bank. Simply put, “Bank is an institution which borrows and lends money.” A bank receives deposits from those who want it to be kept safely and also earn some interest. In other words, it borrows money. It also lends money to merchants or manufacturers. Thus borrowing and lending of money are its two essential functions. Accordingly any financial institution (like post office) which accepts deposits only but does not lend will not be called a bank. Since purchase and sale of the use of money are credit operations, economists usually define banks as institutions dealing in credit and money. Thus any institution which accepts deposits from the public withdrawable by cheques and advances loans of various sorts is called a bank. According to Cairncross, “A bank is a financial intermediary, a dealer in loans and debts.”

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