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Fourth year, Bachler BA BSCﮐﻼس ﺑﯽ اے۔ﺑﯽ اﯾﺲ ﺳﯽ۔۔ > Banking, Finance and Management > Banking B.Com Part II Banking and Finance No
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Topic: Banking B.Com Part II Banking and
Author Finance Notes (Read 272 times)
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: * Bill of Exchange
Yesterday at
* Banking in Pakistan
09:26:17 PM
Q.1. Define Bank and explain that banking system of a country helps in its economic
: OR
Yesterday at
09:26:17 PM Write short notes on, * Industrial Bank, * Agricultural Bank, * Cooperative Bank, *
Bank, * Savings Bank
Posts: 9508
Meaning of Bank
It is generally said that the word "BANK" has been originated in Italy. In the middle of 12th cen
great financial crisis in Italy due to war. To meet the war expenses, the government of that per
forced subscribed loan on citizens of the country at the interest of 5% per annum. Such loans w
Compara, Mintuo etc. The most common name was Monte. In Germany the word Monte was nam
Looking for some
Banke. According to some writers, the word Bank has been derived from the word Banke.
members that can
help other students in It is also said that the word Bank has been derived from the word Banco which means a banch.
Studies lenders in Italy used to transact their business sitting on banches at different market places. W
used to feel to meet his obligations, his banco or banch would be broken by the angry
Bankrupt seems to be originated from broken banco. Since, the banking system has been origin
lending business, it is rightly argued that the word Bank has been originated from the world
Today the word bank is used as a comprehensive term for a number institutions carrying on cer
financial business. In practice, the work Bank means which borrows money from one class of pe
lends money to another class of people for interest or profit.
Definition of Bank
Bank is defined in many ways by various authors in the books on economics and commerce. It i
define a bank, because a bank performs multifarious functions. Different kinds of bank
may be defined in different ways according to their functions. The evolution of different type
specialization in a particular field, gives emphasis on each and every kind of bank. A general an
definition to cover all types of banking institutions would be unscientific and probably impossib
bank should have its own definition explaining its specialized functions. Legislators have unders
and that is why the Bill of Exchange Act 1882 (England) defines thus A bank includes a body of
incorporated or not, who carry on the business of banking.
From this definition it is clear to us that any institution which performs the various banking fun
termed as bank. But in practice it is found that many banking functions vary from time to time a
country. It is not possible on the part of a single bank to perform all the banking functions at th
originated numbers of specialized banks with the objective of performing one or more functions
Central Bank, Commercial Bank, Industrial Bank, Agricultural Bank, Co-operative Bank etc., are
field.
Dr. Herbert L. Hart has defined a Banker as A Banker is one who in the ordinary courses of busin
cheques drawn upon him by persons for whome he receives money on current account.
Paget No one and no body corporate and otherwise can be a Banker who does not (i) take depo
take current accounts (iii) issue and pay cheques drawn upon himself (iv) collect cheques cross
for his customers.
Every person, firm or company using in the description or its title, Bank or Banker or Banking an
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Banking Ordinance 1962 (Pakistan) defines Banking as Accepting for the purpose of lending or
deposits of money from public, repayable on demand or otherwise and withdrawal by cheque, d
otherwise. Vise Sec. 5(1) and 5(B) Banking Co's Ordinance, 1962.
In view of the above definitions, a simple and short definition can be given as Bank is an institu
money and credit. According to this precise definition A bank accepts deposits of money in savin
accounts at lower rate of interest or profit and gives on credit to needy persons and businessme
of interest or profit. It also transfers money for the clients from one city or country to another a
various other agency services for earnings.
Importance of Banking
Bank play a significant role in the economic development. The overall economic of a country is a
dependent on the efficient banking system. Industrial, agricultural and commercial progress of
possible without a good banking system. The importance of banking may be stated as follows:
1. Capital Formation
Economic development depends upon the division of economic resources from consumption to
Capital grows out of savings. Banks play the prime role in accumulating capital by collecting the
of the people. Thus banks render a valuable service towards the development of a country
growth of capital.
Bank utilise their collected funds by advancing loans to commercial and industrial undertakings
foreign trade also, banks render a valuable service by issuing letter of credit etc.
4. Reservoirs of Funds
Banks acts as the reservoirs of money in the country. In times of economic, crisis the bankers c
help the Government by purchasing the Government securities or by advancing loans.
5. Transfer of Funds
Banks facilitate the transfer of funds from one place to another safely and at a very cheap cost
drafts, mail transfers, telegraphic transfer, travellers cheque etc.
Banks deal in foreign exchange by purchasing and selling foreign currencies and by issuing lett
Foreign remittances of funds are possible only through banks.
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The structure and ups and downs of money market in the country are largely dependent on the
Under the guidance of the central bank all the banks in the country do their best for the sound m
money market.
8. Service to Customers
Banks perform various agency services on behalf of their customers. They collect or
exchange, dividend, insurance premium etc, on behalf of their customers. They act as the
of documents etc. They also extend financial advises to their customers.
10. Bank facilitates the transfer of funds from one place to another.
13. Bank acts as underwriters for raising capital or loan by Government, Public Bodies and Cam
14. Bank acts as trustees and Executor of will and documents on behalf of their customers.
15. Bank acts as the correspondent and representative of its customers, other banks and financ
16. The Bank collects and makes payments of Bills of Exchange on behalf of its customers.
17. The bank makes payments and collects in respect of subscriptions, insurance premiums, ren
and also receives pension dividends and payment of utilities bills on behalf of their customers.
18. Bank advances loans and extend financial advices to its customers.
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Every bank is a dealer in money and credit. It generally deals in with others money and not with
takes deposits from the public and again lends to its customers for the sake of interest or profit
Thus, the operation of banking business is very risky one. A bank must have some qualities in o
functions efficiently and successfully. The qualities of good banking may be summarized as belo
1. Adequate Capital
A banker must have adequate amount of capital. A large scale operation and execution of variou
modern bank require large amount of capital at the initial stage. Thus, without sufficient capita
banking can flourish.
2. Good Reputation
Reputation is the most important factor in the progress of a bank. To be successful, a bank mus
reputation in the money market. Reputation of a bank depends upon the qualifications
efficiency of management and workers.
3. Liquidity.
Money which is dealt in by a bank is not its own, so a banker must always keep himself ready to
of his depositors. He should keep sufficient amount of cash reserve and should keep some
that these can be encashed at any moment. He should not block his fund by advancing loans for
rather he should always prefer short term credits.
In respect of advancing loans safety should be the main guiding principle for a bank. The loans
banker must be secured. The persons to whom the advance is to be made, must be studied
lending of money. According to R.S. Sayers, The good banker is one who can distinguish the sou
unsound borrower.
5. Economy
Economy in expenditure should be maintained for the proper operation of banking business. A g
always try to maximise his profit at a minimum cost.
6. Effective Publicity
A bank should adopt various scientific methods of advertisement for the proper publicity of bus
7. Localization
Good locality of a bank is another quality. The bank should be located in the business centre so
its business successfully.
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8. Speciality
The bank office should be well equiped with modern aminities proper sitting arrangement
the bank office for its customers.
The officers and the employees of the bank must be efficient in their work. They should be well
fields of banking. Furthermore they should be well behaved and polite in the manner and must
personality.
Classification of Banks
1. Structural Classification
Banks can be classified on the basis of their structure or constitution. According to structural cla
banking may be classified as (a) Branch Banking (b) Unit Banking
Under branch banking system, banking business is carried on through a network of branches in
country under the guidance and control of one single head office. These branches may also be lo
the country. This system of banking was originated in the United Kingdom. Now-a-days this sys
many countries of the world including Pakistan.
Under unit banking system the banking operations are carried through a single office without a
Remittances and foreign exchange etc, are dealt through correspondence between banks of two
is the home of unit banking.
Branch banking system enjoys all the advantages of large scale operation. Proper division of lab
successfully and the employees become specialized in different banking fields.
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2. Economy of Reserves
Under this type of banking, the funds can easily be transferred from one branch to another. So f
maintaining cash reserve can be secured by a banking having number of branches.
3. Remittances of Funds
This system facilitates easy remittances of funds from one place to another through its number
different places.
The bank having many branches can spread its risk geographically or territorially. In case of los
branch in an area can be offset by profits of the branches of other areas.
By making easy movement of funds from one place to another branch banking system can main
rate of interest in different parts of the same country or of the world.
The bank can formulate a wise banking policy. As it has got a good number of branches through
can study money and credit position correctly. Loans and advances are made on merits and not
consideration. Applications for large amount of loan are passed on to the higher authorities in h
Under branch banking system a branch can transfer its idle funds to other branches where this
profitable terms.
8. Foreign Exchange
As it has got foreign branches it is easier to operate foreign exchange for a branch banking.
Branch banking system having large scale operations attracts superior personnel and offers wid
training of the personnel.
Under branch banking system, it becomes very difficult for a single head office to manage and c
branches much effectively.
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2. Red Tapism
Red-Tapism and delay is common due to lack of sufficient authority to branch managers. They a
to stay for long in one branch, so they do not have the chance of becoming familiar with local
Due to large number of branches the relationship between the employers and employees is not
4. Late Decision
A branch banking a large organisation, can take neither quick decision nor prompt action in cas
In branch banking system large financial resources are concentrated in the hands of small num
of bank.
Under unit banking system, it becomes very easy for a single office to manage and control
Under unit banking system, there prevails a close and cordial relationship between employer an
3. Quick Decision
The owners or the management of unit banks can take quick decision and prompt action in time
Due to the less scattered affairs of the bank, there are very little possibilities of fraud and
Unit bank business can not be operated on large scale because of its limited area. Being the sm
division of labour can not be applied.
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2. No Economy of Reserves
Under unit banking, bank can not transfer its funds to any other branch. So economy in cash res
secured under this system.
A unit bank has limited financial resources so it is not able to provide full and adequate banking
industry and trade of the area.
A unit bank having no other branches, can not utilize its idle funds in profitable ways.
Under the system, there prevails a great disparity in the rate of interest in the same country as
of different banks are separate from each other.
On the basis of nature of operation, banks can be classified into the following two categories.
The unit banks, having no branch are linked together by correspondent bank system. Under this
bank of a village or small town deposits a portion of its cash reserve with another bank in the n
this superior bank of city also deposits with another greater bank of big city. These unit banks a
correspondence. Remittances of funds of home and foreign trade transactions are made throug
correspondent banks. The unit banks are completely independent of each other no doubt, but th
with one another through correspondent system.
The bank which performs one or more special functions is known as specialized bank. As for exa
agricultural bank takes up the special responsibility of financing agricultural activities. Industri
finance the industrial undertakings. Japan is the home of specialized banks where different type
banks are working with their special functions.
The specialized banks have a great role in the economic development of a country, specially of a
country like Pakistan.
In our country, Agricultural Development Bank of Pakistan is helping financially in the developm
sector of our economy. The Industrial Development Bank of Pakistan is another specialized ban
large scale industries in Pakistan.
Banks may be classified according to their functions. Different kinds of banks, with
summarized as follows:
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A central bank is the most important institution in the banking system of a country established
of regulating the banking and monetary system of the country. It issues notes and currencies w
and is entrusted with responsibility of maintaining the price level in the country stable. It acts a
Government and it directly or indirectly controls the activities of all other banks. State
Bank of our country.
Such type of bank is cheerfully engaged in financing internal trade. It deals in short term credit
from public through different type of deposit accounts and invests that collected fund in advanc
short period to the trading and commercial undertaking. This type of bank is familiar in most of
country, for example, National Bank of Pakistan, Habib Bank Limited, United Bank Limited, Mus
Bank Limited and Allied Bank Limited are the commercial banks.
Such institution specialises in financing industry. It provides long term credit to people who car
enterprises. Industrial Development Bank of Pakistan (IDBP) and Pakistan Industrial Credit and
Corporation (PICIC) are the examples of industrial banks.
Such bank provides long and short term finance to agriculturists for their agricultural purposes.
is required for acquisition and improvement of land and purchase of heavy machinery and equip
period capital is required by the farmers for current expenditure on seed, manures, wages
Development Bank of Pakistan (ADBP) is the best example of agricultural bank in our country w
term, medium term and short term loans to the agriculturists.
Exchange bank deals mainly in the finance of the foreign trade of the country. It deals in foreign
otherwards, the main function of such bank is to buy and sell foreign currencies, rather titles to
in the form of bills of exchange, drafts, telegraphic transfers etc. It purchases the bill of exchan
connection with the import and export trade of the country and they deal in exchange. The
liquidate the international indebtiness by exporting and importing precious metals and securitie
they purchase bills in the international money market and deposit them with their banking agen
commercial centres like London, Paris, New York etc. They draw and sell their own drafts on the
accounts.
This type of bank is organised mutually by the persons of similar occupations within the objecti
banking and credit facilities to the members. Generally in every country. Government patronise
banks in order to encourage the cultivators, fisherman, workers in the factories etc.
Mortgage bank advances long term credits against securities of immovable properties like, agri
buildings and machinaries etc. Generally, credit is give to the agriculturist, small industries or h
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type of bank is essential in an under developed country where capital supply is very
Building Finance Corporation is functioning as mortgage bank providing long term loans to
securities of building and land property.
Such banks provides facilities to people to save money. This type of bank is established with the
promoting the thrift or saving habits among the people of small incomes. It takes deposits from
lands the collected funds to traders. Depositers are allowed to withdraw money from their
week. Post offices in Pakistan carry on functions of saving bank. Of course commercial and othe
saving deposits.
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Functions of Central Bank
The central bank is the pivote of all the banking system. The chief functions of a central bank may be describ
1. Issuing Notes
The central bank has the sole responsibility and monopoly of issuing notes within the country. It is the sole c
The central bank is required to keep a certain percentage of gold reserves against issue of notes. Usually, it
gold as reserve. It undertakes expansion and contraction of the currency alongwith business demand. Money
issuing notes. On the other hand, it can decrease money supply by selling government securities. By enjoinin
issue it gives uniformity to the system of note issue in the country.
2. Governments Banker
The central bank acts as a financer of the government of the government. It is a government banker not onl
paying money on behalf of the government but it also manages the public debts. It keeps the government fu
free of interest. On the other hand it gives loans to the government without limitation of amount. It is the fis
government. It helps the government in designing a fiscal policy for the country so its also plays the role of
the government.
3. Banker's Bank
It acts as the custodian of cash reserves or balances deposited compulsorily by the scheduled banks. Either
member banks are to keep certain portion of their deposits with the central bank as reserve. For
scheduled or commercial banks are to keep cash reserve with State Bank of Pakistan to the extent
Bank also provides short term credit to commercial banks by rediscounting first class bills and other securitie
of banker's bank.
4. Management of Gold Standard
Where the currency of a country is on gold standard, it is the responsibility of the central bank to manage th
order to control the stability of exchange rate. It regulates and checks the movement of gold in the country.
gold standard is not so vital and important these days.
5. Credit Control
It is another important function of central bank. It controls the flow of credit in accordance with the needs o
country. Credit plays an important role as the medium of exchange, so its expansion or contractors effects th
country. In order to maintain stability in the price level, central bank controls the volume of credit.
changing bank rate, purchasing and selling securities and by changing reserve rates of the member banks. I
bank attempts to control the volume of credit and stablishes the business conditions in the country.
6. Clearing House
It is the Clearing House of the bankers. Under this function central bank of facilitates the settlement of bills a
banks.
7. Exchange Control
It is the responsibility of the central bank of control foreign exchange and maintain the rate of exchange. It p
approved foreign currencies at the current or fixed rate. It also acts as the custodian of foreign exchange
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8. Lender of Last Resort
As lender of last resort, it is implicit that the central bank assumes the responsibility of meeting directly or in
demands for accommodation by commercial banks in the times of difficulties and crises. If any commercial b
financial difficulty for any reason, it is central bank who comes forward to help it.
9. Custodian of National Reserve
The Central Bank acts as the trustee of the entire economy of the country and thus keeps in its custody all n
form of gold, silver and securities.
Credit Control
Credit plays an important role in maintaining and changing the price level as medium of exchange. It is the r
central bank to regulate the volume of credit and its direction to maintain stability in the price level.
Following are the main objectives of credit control by central bank
1. Safe Guarding the Gold Reserves
The central bank adopts various measures of credit control to safe guard the gold reserves against
2. Stability in Price Level
Credit control provides stability in price level in the country.
3. Exchange Stability
Another objective of credit control is to achieve the stability of foreign exchange rate. If the foreign
indicates the stable economic conditions of the country.
4. Stability in Investment and Production
Control of credit by central bank also provides stability in the investments and production by making price le
'5. Cooperation
Control of credit is done to promote cooperation with other countries for the purpose of maintaining world ec
Methods Or Techniques of Credit Control
The central bank usually controls the volume of credit through the two types of methods, quantilative and qu
1. Bank Rate Policy
It is also known Discount Rate Policy. Bank rate is the rate of interest which is charged by the central
first class bills of exchange and advancing loans against approved securities. This facility is provided to other
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Importance
The bank rate is different than the money market interest rate. The charges in bank rate are followed by oth
country in changing their interest rate. If the bank rate is raised by central bank, other rates of money also g
market rate of interest and other rates go down, when central bank decreases its bank rate. These changes
and demand for money. Borrowing is discouraged when the rate of interest increases and encouraged
Effects of Changes in Bank Rate
The changes in the bank rate may cause the following effects.
a. Changes in Deposit Volume
When the central bank increases the bank rate, commercial banks also increase the rate of interest and
of the banks also increase. Conversely, when bank rate is decreased the deposits of commercial bank also de
b. Controls the Borrowings
When the bank rate is raised, the rate of interest and discount of other banks goes up margin of profit
businessmen to borrow money and thus the volume of loans and discounting of bills is minimised. On the oth
bank rate encourages loans and bill discounting.
c. Changes in the Prices of Shares and Securities
A rise in bank rate makes shares and securities in the market cheaper and conversely, by a fall in the bank ra
securities becomes dearer.
d. Changes in the Volume of Speculative Business
A rise in the bank rate restricts the volume of credit and discourages speculative business. But
is expended due to the increase in the credit supply.
e. Changes in the Foreign Trade
A rise in the bank rate encourages export and discourages import. A fall in the bank rate encourages
export. When the bank rate is raised, the demand for home currency goes up and the demand for home
bank rate.
f. Changes in Balance of Payment
Due to rise in the export trade, a rise in bank rate causes a favourable balance of payment. But
unfavourable balance of payment.
2. Open Market Operation
The open market operation means the buying and selling of securities by the central bank in order to influen
credit supply in the country. This technique is effective upto some extent in both conditions of inflation and
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3. Change in Reserve Ration
The member banks of central bank are required either by law or custom to keep a certain percentage of the
central bank. It is called as Cash Reserve Ratio. The central bank may controls credit by changing the reserv
reserve ratio is increased the member banks to some extent are discouraged to bank money. When this ratio
banks are encouraged to expend credit.
Clearing House
The central bank manages and supervises the clearing house to facilitate the clearing of cheques between ba
usually receives number of cheques drawn on other banks from his customers as deposits. In other words ba
drawn on other banks from their account holders. As a result, there arises inter bank indebtedness. For exam
Pakistan receives deposit of cheques worth Rs. 6,000/= drawn on Habib Bank Limited, Habib Bank on the ot
cheques worth Rs. 5,000/= drawn on National Bank of Pakistan. Thus National Bank owes Rs. 5,000/= to Ha
Bank owes Rs. 6,000/= to National Bank.
Inter bank indebtednesses are settle through a central organisation known as Clearing House. "A clearing ho
organisation of banks of a given place, having for its main purpose, the off setting of cross obligations in the
indebtednesses of the member banks are settled only by paying the differences. Generally central bank of th
the function of clearing house. In Pakistan, State Bank of Pakistan performs the duty of clearing
Role of Central Bank in Economic Development
The economic stability of a country is solely dependent on the Central Bank. It is the only financial
is responsible for regulating the banking and monetary system of the country. The need of a central bank in
essentially felt considering the following services rendered by a central bank for economic development of a
1. Capital Formation
Economic progress of a country requires adequate amount of capital. Capital is required for agriculture, indu
development. But in a developing country like Pakistan. It is a chronic problem to procure capital. Central Ba
institution plays prime role in capital formation in the interest of the nation as a whole. As the guardian of th
regulates the capital flow in the country in proper form and suitable time.
2. Credit Control
Credit is one of the most important source of financing trade and industry. The central bank as the controller
encourage a particular sector of economy by adopting selective credit control.
3. Developing Banking System
As a guardian of all banks, the central bank works for the development of banking system of the country.
4. Protecting Interest of the Depositors
The central bank protects the interest of the depositors in banks by guiding, controlling and checking the me
operations in the country.
5. Stability in Prices
The central bank keeps the price level stable in a country by controlling money and credit supply.
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6. Advice to the Government
The Central Bank extends valuable suggestions and advices to the Government in respect of economic and m
7. Personnel Training
The central bank in some countries provides training facilities to the bank personnel.
Q.3. Discuss the different types of bill.
Definition and Salient Features
According to Negotiable Instrument Act a Bill of Exchange is "An instrument in writing containing an
by the maker directing a certain person to pay on demand or at a fixed or determinable future
to, or to the order of a certain person or to the bearer of the instrument.
Thus we find the following important features of a bill of exchange:
1. The order to pay a bill must be unconditional one.
2. The order to pay must be made in writing on the bill.
3. The bill must be signed by the drawer of the bill. Without signature of the drawer the bill will not be genu
4. The order to pay under a bill must be addressed to a certain person which, of course, includes ndividuals,
corporation etc.
5. The amount to be paid under a bill must be certain one.
6. The money under a bill must be paid in legal tender currency.
7. The amount should be payable to or to the order of a specified person or to the bearer of the
8. The amount should be payable either on demand or at a fixed determinable future time.
9. The bill must be duly stamped.
10. The other formalities like dating, stating the names of the parties concerned etc. must be observed.
Parties to a Bill of Exchange
Following are the various parties related to a bill transaction
a. The Drawer
The person who draws the bill and puts his signature on it is known as the drawer of the bill. He is also calle
bill.
b. The Drawee
The person on whom the bill is drawn is called as the drawee of the bill.
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c. The Acceptor
The person who accepts the bill is known as the acceptor of the bill. Usually, the drawee accepts the bill. But
party may also accept a bill on behalf of the drawee. The acceptor puts down his signature across the bill sh
d. The Payee
The person to whom the amount of bill is to be paid is known as payee of the bill. The drawer may make the
himself or to any other person he likes.
e. The Endorsee
The holder of the bill may endorse the bill in favour of someone else known as endorsee. The person who
called endorser.
f. The Holder
The person who holds the bill and is entitled to realise the amount of the bill from the drawee is known as
Types of Bills
Bills may be of the following types:
a. Inland Bills
Inland bill means the bill which is drawn and payable within the same country. Thus, the bill which is drawn
also be paid in Pakistan is termed as an inland bill.
b. Foreign Bill
The bill which is drawn in one country and accepted and payable in another country is known as a foreign bi
c. Accommodation Bill
The bill which is drawn and accepted by the parties concerned for their mutual accommodation with a
negotiating it, is known as an accommodation bill. The parties concerned bind themselves as the drawer and
any valuable consideration.
d. Demand Bill
The bill which is payable "on demand" or "on presentation" or "at sight" is known as demand bill.
e. Time Bill
The bill which is payable at a fixed or a determinable future time is known as time bill. The time bill may furt
following:
* After Date Bill:
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The bill whose tenure is counted from the date of drawing it is known as after date bill.
* Sight Bill:
The bill whose date of payment is counted from the date of acceptance is known as after sight bill.
f. Documentary Bill
When a bill is accompanied by shipping documents like, Bill of Lading, Invoice, Insurance Policy relating to
the bill is drawn, is then known as a documentary bill.
g. Sent Bill Or Bills for Collection
When bills are handed over to a bander by his customer in order that they may be collected when due and
to the customer's account. They are called as Bills for Collection.
h. Bills Negotiated
The bills for which the banker has given the value at once, without waiting for the proceeds after
i. Bills in Set
When bills of exchange are drawn in two or more parts, they are called "bills in set". The foreign bills are ge
of two or three. The each of the set is on a seperate piece of paper, but all parts are worded exactly in the s
that the parts are numbered as "The 1st of exchange", "2nd of exchange" etc.
j. Bills Retired
When a bill is withdrawn from circulation or taken back before it is due, it is known as "retired bill".
Discounting of Bills
A time bill is payable on future date and the holder of the bill is to wait for a specific period of time to
bill. But the modern commercial banks are providing the facilitates of discounting of bill to the holder to have
discounting of bill, the bank purchases the bill from the holder at a reduced rate before maturing of the bill a
amount of the bill from the acceptor on due date. The reduction in the value of bill at the time of purchase b
"discount" and it is charged on the basis of interest rate. Thus, discounting of bill is a sort of short term cred
of the bill by a banker and the discount forms the profit to him.
Discounting of bill very useful from the point of view of traders and bankers. It benefits the importer, export
equally. The exporter or seller can get immidiate cash as soon as he handed over the goods to
buyer gets enough time to sell the goods after having received it. The bankers earn a lot by effecting these t
Precautions in Discounting a Bill of Exchange
Like advancing other loans and credit, discounting of bills also is a very risky job on the part of the banker. H
and cautious with discounting the bill of exchange and must take the following precautions are measures in
1. He should examine financial standing of the holder and acceptor of the bill. If the parties concerned
him, the banker can easily learn their financial stability. If there is no such account with him, the
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where they have got account to know their financial position.
2. The banker is also to examine the financial status of other parties engaged in the bill.
3. The banker should see whether the acceptor dishonoured any other bill in past time.
4. Th banker should satisfy himself whether the bill is a bonafied trade bill which is accepted for value receiv
business. The banker should, as for as possible, avoid the accommodation bills.
5. The banker should examine the bill whether all the formalities as of date, stamp, signature etc, have been
6. He must see whether the bill is capable of being endorsed. If so, the banker should see whether the bill is
payee.
Presentation of Bills
Bill has to be presented first of all before the drawee for acceptance and again in due date it is to be present
acceptor for the payment. Thus, presentation of bill may be of two types viz,
1. Presentation for Acceptance
2. Presentation for Payment
1. Presentation for Acceptance
Presentation for acceptance is made not only for the acceptance of the bill but also to fix-up the time,
In case of time bill, where the tenure of the bill is clearly stated, the bill is presented for acceptance of the d
stipulated time for payment.
A bill should be presented for acceptance within a reasonable tenure after the drawing or negotiation of
2. Presentation for Payment
If refers to presentation of a bill before the draw or acceptor or before the agent of the drawee or acceptor f
the bill on due date. The presentation for payment is subject to the following rules:
* In case of "demand bill", the bill must be presented within a seasonable time after its drawing or endorsem
be,
* In case of time bill, the bill should be presented for payment on the due date.
* The bill should be presented for payment during the business hours of working days.
* The bill should be presented for payment at the proper place. The term proper place may refer to any one
(i) The place mentioned in the bill for payment.
(ii) Where no specific place is mentioned in the bill, the address of the drawee or acceptor.
(iii) Where no address is given, of any place where the drawee or acceptor can be found including his
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development of the country and the more urgent social welfare projects.
5. To co-ordinate the banking policy in various areas of feasible joint activity without eliminating healthy com
banks.
According to section 5 of this Act the State Bank of Pakistan; Industrial Development Bank of Pakistan, The P
Cooperative Bank and all commercial banks incorporated in Pakistan and carrying banking business in Pakist
been nationalized and the number was brought down to five.
Banking Council
For coordinating the planning and operations of banks and monitoring the cost of operation the Pakistan Ban
up under section 9 of the Bank (Nationalization) Act 1974.
The nationalized banks made good progress in expending the banking services in the nooks and corners of P
low level of domestic savings and heavy dependence on foreign borrowings. The number of branches which
December 31, 1973, reached about more than 7,000 by June, 1988. Similarly, the bank deposits which stood
1973 reached the high mark of Rs. 23,867 crores by June, 1988.
Organization of Pakistani Banking
Pakistani banking system was expended remarkably and it can be compared with banking system of any
the world. At present the banking structure in Pakistan comprises of the following:
1. Central Banking
State Bank of Pakistan is the central bank of the country with its offices at Karachi, Hyderabad and Sukkur in
Lahore, Faisalabad, Gujranwala, Sialkot and Multan in Punjab; Peshawar in N.W.F.P and Quetta in Balochista
located in Islamabad.
2. Commercial Banking
Commercial banks have been the most effective mobilizors of savings and have been providing short term
working capital to trade, commerce and industry. After nationalization commercial banks have been
to agricultural sector also.
After the nationalization in 1974 all the 14 commercial banks were reorganized and merged into the
* National Bank of Pakistan
* Habib Bank Limited
* United Bank Limited
* Muslim Commercial Bank Limited
* Allied Bank of Pakistan Limited
The other banks were merged in these banks. Bank of Bahawalpur was merged with the National
(Overseas) Limited, and Standard Bank Limited were merged with Habib Bank Limited; Premier Bank
Commercial Bank Limited; Commerce Bank Limited with United Bank Limited and Sarhad Bank Limited and
Australasia Bank Limited and renamed as the Allied Bank of Pakistan Limited.
3. Exchange Bank
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Foreign bank generally have been engaged in financing the foreign trade but they are fully authorised to
banking functions including the acceptance of deposits from public. At present there are eighteen foreign
They are located in Karachi and other commercial cities of Pakistan. The State Bank of Pakistan does
branches in small towns in the interior of the country.
4. Savings Banks
Post Office Savings Bank is the only Saving Bank in the country. It is controlled by the Government of Pakista
deposits from public and invest them in various Government projects.
5. Co-operative Banks
Generally there are three systems of cooperative banking in Pakistan. They consist of primary cooperative so
Central Cooperative Banks and Banking Unions in the middle and Provincial Cooperative Banks at the top. Th
Provincial Cooperative Banks, one each in Punjab, Sindh, N.W.F.P and Balochistan; 52 central cooperative ba
Unions and above 28,000 primary Agricultural and credit societies.
These cooperative banks are integrated taking a very active part in the promotion of thirft, self help and mut
agriculturalists and others with common economic needs as as to bring about better living, business and pro
6. Specialized Financing Institutions
These institutions are Government sponsored corporations. The main objective of these institutions is to stim
development of country's economy by providing capital resources and technical advice to industrial and com
agricultural sectors. They provide long term and medium term credit to these sectors.
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