Question

Discuss the main functions of commercial banks.

Hint:

Commercial banks play a central role in economic development by providing capital and facilitating financial transactions.

Answer 1

Commercial banks are essential for the financial system and economy. Their primary function is to accept deposits and provide loans. Deposits are gathered from individuals, businesses, and the government. These deposits are then used to offer loans to people, businesses, and institutions, which helps stimulate economic growth. Banks also provide payment services, such as issuing cheques and facilitating electronic payments. They offer foreign exchange services, allowing individuals and businesses to exchange currencies. In addition, commercial banks act as intermediaries in the financial markets, helping to distribute capital effectively across the economy. Furthermore, they help in maintaining liquidity, manage savings, and promote investments, which is crucial for economic growth and financial stability. By offering a range of products and services, commercial banks contribute to financial inclusion, enabling individuals and businesses to access essential financial tools.