Write short notes on (a) The importance of a cheque (b) Primary functions of commercial banks.

(a) The Importance of a Cheque

A cheque is an unconditional order in writing, drawn upon a specified banker, directing the bank to pay a certain sum of money to the order of a person or to the bearer. It is one of the most important and widely used instruments of payment in modern banking.

Importance of a Cheque:

1. Convenient method of payment — There is no need to count and check large numbers of currency notes; a single cheque can settle large amounts.

2. Safety — Use of cheques (especially crossed cheques) ensures safety, as payment is made only into the payee's bank account.

3. Easy transfer of funds — Cheques facilitate the transfer of funds from one place to another and even from one country to another, easily and cheaply.

4. Acts as a receipt — A paid cheque serves as valid proof of payment, useful in case of disputes.

5. Supports credit — Cheques facilitate credit transactions, which support the growth of trade and commerce.

6. Saves currency notes — The use of cheques reduces the demand for currency notes, saving printing and handling costs.

(b) Primary Functions of Commercial Banks

The primary functions of a commercial bank are two:

1. Accepting Deposits — Commercial banks accept deposits from the public for safekeeping, earning interest, and to facilitate banking transactions. The four main types are:

• Fixed Deposits — for a fixed period; higher interest.
• Savings Deposits — for small savings; cheque book and pass book issued.
• Recurring Deposits — fixed monthly amount for a fixed period.
• Current Deposits — for business firms; no interest, but unlimited transactions and overdraft.

2. Lending Money — Commercial banks lend the deposited money to businessmen, farmers, artisans and others through:

• Overdraft — withdrawal beyond the credit balance up to a specified limit.
• Cash Credit — fixed credit limit against tangible security.
• Discounting of Bills — payment of bill amount before maturity after deducting discount.
• Loans and Advances — lump sum amount for a fixed period.