The document discusses the roles and functions of central banks and commercial banks. It outlines that central banks serve as the regulator of currency, provide banking services to governments, act as custodians for commercial bank reserves, manage foreign exchange reserves, lend to other banks as the lender of last resort, facilitate clearing and settlement between banks, and control credit in the economy. Commercial banks accept deposits from the public, make loans with the deposits, provide overdraft facilities, discount bills of exchange, and perform agency functions like funds transfer and purchase/sale of securities.

1. Subject – Economics for Engineers, Sem - VII
Subject In-Charge-Mr.Suryawanshi AA

2.  A national bank that provides financial and banking
services for its country's government and commercial
banking system, as well as implementing the
government's monetary policy and issuing currency.

3. 1. Regulator of Currency:
The central bank is the bank of issue. It has the
monopoly of note issue. Notes issued by it circulate as
legal tender money. It has its issue department which
issues notes and coins to commercial banks. Coins are
manufactured in the government mint but they are put
into circulation through the central bank.
A minimum fixed amount of gold and foreign
currencies is required to be kept against note issue by
the central bank.

4. 2. Banker, Fiscal Agent and Adviser to the Government:
Central banks everywhere act as bankers, fiscal agents and
advisers to their respective governments.
As banker to the government, the central bank keeps the
deposits of the central and state governments and makes
payments on behalf of governments. But it does not pay
interest on governments deposits. It buys and sells foreign
currencies on behalf of the government.
As a fiscal agent, the central bank makes short-term loans to
the government for a period not exceeding 90 days. It floats
loans, pays interest on them, and finally repays them on
behalf of the government.
The central bank also advises the government on such
economic and money matters as controlling inflation or
deflation, devaluation or revaluation of the currency, deficit
financing, balance of payments, etc.

5. 3. Custodian of Cash Reserves of Commercial Banks:
Commercial banks are required by law to keep reserves
equal to a certain percentage of both time and demand
deposits liabilities with the central banks. It is on the
basis of these reserves that the central bank transfers
funds from one bank to another to facilitate the clearing
of cheques. Thus the central bank acts as the custodian
of the cash reserves of commercial banks and helps in
facilitating their transactions.

6. 4. Custody and Management of Foreign
Exchange Reserves:
The central bank keeps and manages the
foreign exchange reserves of the country. It is
an official reservoir of gold and foreign
currencies. It sells gold at fixed prices to the
monetary authorities of other countries. It
also buys and sells foreign currencies at
international prices. Further, it fixes the
exchange rates of the domestic currency in
terms of foreign currencies.

7. 5. Lender of the Last Resort:
The central bank lends to such institutions in order to
help them in times of stress so as to save the financial
structure of the country from collapse.
6. Clearing House for Transfer and Settlement:
As bankers’ bank, the central bank acts as a clearing
house for transfer and settlement of mutual claims of
commercial banks.
7. Controller of Credit:
The most important function of the central bank is to
control the credit creation power of commercial bank in
order to control inflationary and deflationary pressures
within this economy.

8.  A bank that offers services to the general public and to
companies.
 It has two functions
1. Primary function.
2. Secondary function.

9. 1. Accepting Deposits:
(i) Current Account Deposits or Demand Deposits:
These deposits refer to those deposits which are repayable
by the banks on demand, Banks do not pay any interest on
these accounts. Rather, banks impose service charges for
running these accounts.
(ii) Fixed Deposits or Time Deposits:
Fixed deposits refer to those deposits, in which the amount
is deposited with the bank for a fixed period of time.
(iii) Saving Deposits:
These deposits combine features of both current account
deposits and fixed deposits.

10. 2. Advancing of Loans:
The deposits received by banks are not allowed to remain
idle. So, after keeping certain cash reserves, the balance is
given to needy borrowers and interest is charged from them,
which is the main source of income for these banks.
Different types of loans and advances made by
Commercial banks are:
(i) Cash Credit:
Cash credit refers to a loan given to the borrower against his
current assets like shares, stocks, bonds, etc.
(ii) Demand Loans:
Demand loans refer to those loans which can be recalled on
demand by the bank at any time. The entire sum of demand
loan is credited to the account and interest is payable on the
entire sum.
(iii) Short-term Loans:
They are given as personal loans against some collateral
security. The money is credited to the account of borrower
and the borrower can withdraw money from his account and
interest is payable on the entire sum of loan granted.

11. 1. Overdraft Facility:
It refers to a facility in which a customer is allowed to
overdraw his current account upto an agreed limit. This
facility is generally given to respectable and reliable
customers for a short period. Customers have to pay interest
to the bank on the amount overdrawn by them.
2. Discounting Bills of Exchange:
It refers to a facility in which holder of a bill of exchange
can get the bill discounted with bank before the maturity.
After deducting the commission, bank pays the balance to
the holder. On maturity, bank gets its payment from the
party which had accepted the bill.

12. 3. Agency Functions:
(i) Transfer of Funds.
(ii) Collection and Payment of Various Items.
(iii) Purchase and Sale of Foreign Exchange.
(iv) Purchase and Sale of Securities.
(v) Income Tax Consultancy.
(vi) Trustee and Executor.
(vii) Letters of Reference.

13. 4. General Utility Functions:
(i) Locker Facility.
(ii) Traveller’s Cheques.
(iii) Letter of Credit.