(a) Distinguish between:
(i) a mortgage bank and a merchant bank.
(ii) a commercial bank and a development bank.
(b) Explain any four functions of commercial banks.
Explanation
(a)(i) A mortgage bank is a financial institution that specializes in granting loans to individual and corporate bodies for building purposes. Such loans are repaid by installments and can be spread over several years. On the other hand, a merchant bank is a financial institution that provides specialized services like acceptance of bills of exchange, corporate finance; portfolio management, equipment leasing and acceptance of deposits.
(ii) Commercial banks are financial institutions that per-form the services of holding people's money and ac-counts and using such money to make loans and other financial services available to customers. The loans are usually for short and medium terms. Also, Development bank is a financial institution set up to pro-vide long term loans to groups of individuals and governments for development projects. They provide financial assistance in high risk, low profit and long gestation period investments which are unattractive to commercial banks.
(b) The functions of commercial banks include:
(i) Acceptance of deposit: Customers money can be kept in any of the three different types of commercial bank accounts-savings, current or demand deposit and time or fixed deposit accounts.
(ii) Lending of money: Commercial banks make avail-able loans, overdraft and discount bills of exchange for their customers.
(iii) Commercial banks provide: facilities for domestic and foreign remittances. Such transfers can be done telegraphically or by cable, or by ordinary sail or through traveller's cheques.
(iv) Commercial banks provide: facilities for the safe keeping of valuables
(v) Trust services for individuals and organizations. Trust services include the management of trust funds.
(vi) Agency services: The banks act as agents for their customers in the purchase and sale of securities.
(vii) Money creating function: Deposits received can be given out as credit to customers which in turn create further deposits.
(viii) Commercial banks offer advisory services to customers.