The banking sector has revolutionized the financial world. Banks remain some of the most profitable ventures out there. This could be attributed to the fact that they keep the customer’s cash which is then used for various purposes. This article highlights some of the services that are offered by the banks.
Advancing of loans
The advancing of loans is one of the functions of the banks. It is important to point out that banks are classified as profit-oriented outfits. When they issue their clients with loans, they expect to make some profits on the same, and that is why they charge interest. Banks typically have cash reserves which they use to provide their loans with short-term, medium-term, and long-term loans.
The banks also offer overdraft facilities to its customers. However, when using the overdraft services, the customers are usually not allowed to use the overdraft services multiple times. The banks usually charge interest on the overdrawn amount.
Discounting bill of exchange
The discount bill of exchange is another type of lending that is offered by the banks. When a customer holds a bill of exchange, he is discounted by the bank. The debtor will accept the bill that is drawn on him by the creditor and will agree to pay the amount that is mentioned after the maturity. The banks usually make marginal deductions which are typically in the form of commissions.
The cheque payment is another universal service that the banks offer to its clients. Whenever a client is issued with a cheque, he can draw the cheque upon the bank and request the bank to pay the money. Before settling for the cheque, the bank will have to subject the cheque to official procedures and formal verification.
The banks also trade with foreign currencies. All banks all over the world exchange foreign currencies with the local currencies. Modern banks have, however, outsourced this responsibility to various agents who act on their behalf.
Payment and collection of credit instruments
In the modern transactions, various types of credit instruments like the cheques, promissory notes, and bill of exchange are typically offered. Banks deal with all types of the credit instruments. Banks do the collection and pay on behalf of the customers. They make money on the transaction fees and commission that they charge the customers.