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A financial intermediary or intermediator is a financial institution.
It may be a bank, building society, insurance company, investment bank or pension fund.
A financial intermediary offers a service to help an individual or firm to save or borrow money.
A financial intermediary helps to satisfy different needs of lenders and borrowers.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
For example, if you need $/₹/Rs 5,00,000 to borrow, you should try to find out an individual who wants to lend this amount
But, this will be very time consuming and you will find it very difficult.
Therefore, rather than look for individuals to borrow a sum, it is more efficient to go to a bank (a financial intermediary) to borrow money.
The bank raises funds from people looking to deposit money.
It lends out to those individuals who need it.
Bank takes security deposit to provide loan.
Bank charges service charge and interest on loan.
The main functions of the financial institutions are as follows:
a. |
Financial institutions accumulate the savings from several small investors and invest the same in the security. |
b. |
They offer margin lending opportunity to the prospective customers to purchase new securities from the market. |
c. |
They bring funds suppliers and fund borrowers together in single platform. |
d. |
They play vital role in transferring fund from one entity to another entity through financial market. |
e. |
Financial institutions like commercial bank, development bank and finance company accept deposit from savers. |
f. |
Allocating saving in to investment. |
g. |
Providing financial services. |
h. |
Ensuring satisfaction, return and minimizing the risk of loss. |
i. |
Helping business raising funds. |
Financial Intermediaries
Depository institutions |
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Non-depository institutions |
Commercial banks |
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Insurance companies |
Development banks |
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Pension fund |
Finance companies |
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Mutual fund |
Saving and loan cooperatives |
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Accounting Equation |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Final Account: Class 11 |
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Adjustment In Final Account |
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Capital and Revenue |
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Single Entry System |
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Non-Profit Organization (Non-Trading Concern) |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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Before 1995 BS, there was no any Nepalese bank in Nepal.
All the banking transactions were done through Indian banks.
Nepal Bank Limited was established in 1994 BS and commenced business in 1995 BS.
It was the first bank of Nepal.
Commercial banks are one of the major financial intermediaries.
Their primary function is to transfer of funds from the savers to users.
Commercial bank accepts both time deposit and the demand deposit.
Commercial banks are an important source of short term loan.
Nepal Bank Limited is the first commercial bank of Nepal; it was established in 1994 B.S.
The second commercial bank of Nepal is Rastriya Banijya Bank (RBB). It was established in 2022 B.S. as a fully government owned bank.
After restoration of multiparty democracy in the country several joined venture banks were established.
Commercial banks are ranked ‘A’ grade by NRB.
Commercial banks are the major financial intermediaries.
The main objective of the bank is to earn maximum profit.
There are 27 commercial banks on mid July 2020 licensed by NRB.
Out of them, some commercial banks are given below:
Definition
According to Commercial bank Act, “Commercial bank is a bank that deals with currency exchange, accepting deposit, making loans and doing commercial transactions.”
Mainly, there are two functions of commercial bank. They are primary function and secondary function. They are given below:
Functions of Commercial Bank
Primary function |
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Secondary function |
Accept the deposit |
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Agency service |
Provide loans |
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General service |
Bills discounting |
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Investment |
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Financing foreign trade |
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Remittance and foreign exchange |
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The primary functions of the commercial bank are as follows:
The main function or work of commercial bank is to accept the deposit from public, customers and government.
Bank is the safe place to deposit the money.
There are two types of deposits; they are interest bearing and non-interest bearing.
Fixed deposit account and saving deposit account are interest bearing accounts.
Current deposit account is non-interest bearing.
After accepting deposit from depositors, bank invests these deposits as loan.
This process is also called lending.
To provide loan, bank takes security.
Fixed asset is taken as security.
Loans are business loan, personal loans, vehicle loans, home loans etc.
When customer cannot pay loan amount, security is sold to recover loan amount; thus, it is secured loan.
In developed country, bank provides loan without security.
When one firm purchases goods from vendor on credit, vendor firm demands bill receivable for secure transaction.
Purchaser firm accepts this bill. To write and accept the bill, both firms must have current account at bank. Generally, maturity period of bill is 90 days.
When vendor firm needs money before maturity period, bill can be discounted from bank.
In such a condition, bank discounts bill at rebate.
Bank can invest surplus funds into other company.
The investment may be in shares, bonds and other financial instruments of other company.
Bank also invests in government securities.
Commercial banks provide loan and letter of credit (L/C) to the importers of foreign trade.
They issue guarantee on behalf of the local traders.
Commercial banks play as the role of the referee.
Commercial banks provide facility of remittance (fund transfer) from foreign countries.
They also help in transferring funds within the country and deal with foreign exchange.
These works are performed according to permission of the central bank.
Keep in Mind (KIM)
Current deposit |
Generally, bank does not pay interest under this account. |
Because depositor can deposit or withdraw cash many times during a day or week. |
Deposited amount is large but remains at the bank for very short period. |
It is suitable for business persons. |
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Fixed deposit |
Generally, bank accept large amount for more than one year. |
Depositor cannot withdraw this amount before maturity period. |
Bank allows high Interest rate in this account. |
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Saving deposit |
Generally, this account is suitable for salaried or low-income person. The interest rate is less than fixed deposit account. There is limitation for deposit and withdraw of cash during a day or week. Nari saving, children saving, students saving, old age saving etc are the scheme of saving accounts. |
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Cash credit |
Generally, bank provides this type of loan to its customers on the basis of shares, bonds, inventories and approval security. |
Bank opens account of customer and deposits loan amount into account. |
Customer can withdraw many times during a year. Interest is charged on withdrawn amount. |
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Demand loan |
Bank credits all loans to customer’s account. Customer can withdraw entire loan. Bank charges interest on entire loan. |
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Short-term loan |
Organization takes short-term loan for day-to-day operating activity. |
It is also called working capital. Bank credits all loans to customer’s account. |
Customer can withdraw entire loan. Bank charges interest on entire loan. |
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Share (Accounting for Share) |
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Share in Nepali |
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Debentures |
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Final Account: Class 12 |
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Final Account in Nepali |
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Work Sheet |
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Ratio Analysis (Accounting Ratio) |
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Fund Flow Statement |
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Cash Flow Statement |
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Theory Accounting Xii |
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Theory: Cost Accounting |
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Cost Accounting |
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LIFO−FIFO |
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Cost Sheet, Unit Costing |
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Cost Reconciliation Statement |
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Commercial banks provide financial services to consumers as well as businesses.
It conducts several important activities besides primary functions.
It provides the mechanism for payments and transfers of funds.
The secondary function often complements the primary functions.
It is important to the bank’s core commercial customers and their employees.
Mainly, it has two secondary functions. They are agency service and general service.
Agency service is related with other financial institutions, business firms and service centers.
Bank works as agent of customers.
The main features of agency service are given below:
Collection and payment of the cheques, draft and bills of other bank.
Payment of telephone, mobile, internet, water, electricity bill.
Payment of insurance premium.
Bank guarantee on bid bond/contract.
Payment of installment, interest, income tax.
Purchase and sales of securities like shares and debentures on behalf of customer.
Remittance works (receive and send cash from one place to other).
General services are related within bank.
It is also related to any branch banking service (ABBS).
Some of these facilities are free and some others are provided by taking certain charges.
The main general services are given below:
Locker facility for safe custodian of diamond, gold and legal documents.
Facility of cheque book and statement on demand.
Debit card, credit card, automated teller machine card (ATM card).
Internet and SMS banking.
Letter of credit and bank guarantee facility etc.
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