Bank Account Types

• Banks are institutions that conduct business purely for profit.

Primary Functions are also called Banking Functions

• Accepting Deposits: Banks collect deposits from the public
• Deposits are classified into four types: Savings, Fixed, Current, and Recurring

Savings

• Encourage saving habits
• Interest rates are low, currently about 5% per annum
• Withdrawals are allowed with restrictions
• Suitable for salary and wage earners
• Can be opened in single or joint names

Fixed

• A lump sum is deposited at one time for a specific period
• Higher interest rates vary with the deposit period
• Withdrawals are not allowed before the period expires
• Suitable for those with surplus funds

Current Accounts

• Operated by businessmen
• Withdrawals are freely allowed
• No interest is paid, and service charges may apply
• Account holders may get an overdraft facility

Recurring Accounts

• Operated by salaried persons and petty traders
• A certain sum is periodically deposited
• Withdrawals are permitted only after a certain period
• A higher interest rate is paid

Granting of Loans and Advances

• Banks advance loans to the business community and other members of the public
• The rate charged on loans is higher than what the bank pays on deposits
• The difference in interest rates is the bank's profit
• There are four types of loans and advances: Overdraft, Cash Credits, Loans, and Discounting Bill of Exchange

Overdrafts

• Given to current account holders and no separate account is maintained
• A certain amount is sanctioned as overdraft for a specific period
• Interest is charged on the actual amount withdrawn
• Overdraft facility is granted against collateral security
• Sanctioned to businessmen and firms

Cash Credits

• Clients are allowed cash credit up to a specific limit
• Can be given to current account holders and those without an account
• Separate cash credit account is maintained
• Interest is charged on the amount withdrawn in excess of the limit
• Given against the security of tangible assets and/or guarantees
• Given for a longer period, and a larger amount of loan is sanctioned than an overdraft

Loans

• Normally for the short term (one year) or medium term (five years)
• Banks lend money for the long term today
• Repayment can be in installments or a lump sum
• Interest is charged on the actual amount sanctioned, whether withdrawn or not
• Interest rates may be slightly lower than overdrafts and cash credits
• Loans are normally secured against tangible assets of the company

Discounting Bill of Exchange

• Banks advance money by discounting or purchasing bills of exchange
• Includes both domestic and foreign bills
• The bank pays the bill amount to the drawer or beneficiary, deducting discount charges
• On maturity, the bill is presented to the drawee or acceptor, and the amount is collected

Secondary Functions are also called Non-Banking Functions

• Agency Functions: The bank acts as an agent
• General Utility Functions: The bank performs several tasks

Agency Functions

• The bank acts as an agent of its customers such as trustees, executors, advisers, and administrators
• Acts as representatives of clients to deal with other banks and institutions
• Performs Transfer of Funds, Collection of Cheques, Periodic Payments, Portfolio Management, and Periodic Collections

General Utility Functions

• Issue of Drafts and Letter of Credits: Banks issue drafts for transferring money
• Provides Locker Facility for valuables
• Includes Underwriting of Shares, Dealing in Foreign Exchange, Project Reports, and Social Welfare Programs

Corporations

• The most common form of business organizations
• Chartered by a state and given many legal rights as an entity separate from its owners
• Viewed as legal persons
• Characterized by limited liability, issuance of shares, and existence as a going concern

Responsibilities of Corporations

• Selecting a CEO, Providing Continuity, Managing Resources Effectively, Increasing Profits, and Social Responsibilities

Selecting a CEO

• The board of directors is responsible for selecting a CEO
• CEO ensures that the management team and employees adhere to all policies and procedures
• Corporate CEO's select management teams or executives to help them run their organizations
• The corporation creates an organizational structure that allows it to function effectively
• The management team develops strategies to get the corporation headed in the right direction

Providing Continuity

• Small corporations are formed to stay in business on a permanent basis
• A corporation must continue to function when people are fired, leave, or pass away
• Executives must be replaced by competent individuals
• Directors and lower-level managers hire and train enough workers to keep the company running

Managing Resources Effectively

• A small corporation is responsible for managing its resources effectively
• Those involved in manufacturing must procure the necessary raw materials to create products
• Small wholesale companies must find suppliers for their products
• Must keep products flowing to ensure they are in stock when customers need them
• Minimize waste

Increasing Profits

• All corporations are in business to earn a profit
• Corporations are also responsible for increasing profits to maximize those of their shareholders
• Shareholders have ownership in a corporation
• Corporations maximize shareholders' earnings by selling more products and keeping major costs in line

Social Responsibilities

• Corporations are also responsible for giving back to their communities
• Includes sponsoring events, collecting monies for diseases or illnesses, and donating to local charities
• Keeping residences safe from environmental issues and install certain filters or protective barriers at plants
• Corporate officers may apprise the community when accidents occur

Cooperatives

• Autonomous associations of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise

Trade Unions

• Organizations based on membership of employees in various trades, occupations, and professions
• Major focus is the representation of its members at the workplace and in the wider society
• Seek to advance its interest through rule-making and collective bargaining
• Militant, Fraternal, Social, and Political functions

Militant Functions

• Achieve higher wages and better working conditions
• Raise the status of workers as a part of the industry
• Protect labors against victimization and injustice

Fraternal Functions

• Generate self-confidence among workers
• Encourage sincerity and discipline among workers
• Provide opportunities for promotion and growth
• Protect women workers against discrimination

Social Functions

• Welfare activities provided to improve the quality of work life
• Education of members in all aspects of their working life
• Scheme and procedure for redressing their grievances
• Publication of periodicals, newsletters, or magazines for establishing communication
• Research provides updated information to union negotiators at the bargaining table

Political Functions

• These include affiliating the union with a political party, helping the political party in enrolling members, collecting donations, and seeking the help of political parties during the periods of strikes and lockouts

International Organizations

• Entities established by formal political agreements between their members who have the status of international treaties
• Plays a central role in defining and reinforcing how the global economy works

Bodies responsible for regulating international economic affairs

• World Bank: Set up to help integrate the poor countries into the international economy
• International Monetary Fund (IMF): Helps stabilize currency exchange rates between nations and aids countries with temporary liquidity needs
• World Trade Organization (WTO): Determines and enforces the rules regulating international trade

Transnational Advocacy Groups

• Advocates of principled causes, ideas, and values such as human rights or the environment
• Building bridges across borders to bring about social change

Development Agencies

• Establish and support sustainability programs for the community
• Goals are to help create and support economic growth within a specified city, region, or state by providing necessary resources and assistance