The agency functions of commercial banks do not includea)collection of dividendsb)providing loansc)collection of cheques and draftsd)acting as trustee or executorCorrect answer is option 'B'. Can you explain this answer?

Question

Answer

The correct answer is B: providing loans.Explanation:Agency functions of commercial banks refer to the services that banks provide on behalf of their customers. These functions mainly involve assisting customers in managing their financial transactions and assets. Providing loans, however, is considered a primary function of commercial banks and not an agency function. Agency functions of commercial banks include:A: Collection of dividends- Commercial banks collect dividends on behalf of their customers from various investment sources such as stocks and bonds.C: Collection of cheques and drafts- Banks collect cheques and drafts for their customers, allowing them to receive payments from other parties.D: Acting as trustee or executor- Commercial banks can act as a trustee or executor for their customers by managing their estates, trusts, or other assets as per their instructions.In contrast, providing loans is a primary function of commercial banks, which involves lending money to customers for various purposes such as personal expenses, business investments, or buying property. This function is essential for the bank's profitability and does not fall under the category of agency functions.

Answer

The bank acts as an agent by collecting dividends, cheque on behalf of acc holders and is responsible for the acc, providing loan is a function of commercial bank but not agency function.

Answer

The correct answer is option 'B' - providing loans.

Commercial banks perform various functions to meet the financial needs of individuals, businesses, and the government. These functions can be broadly classified into two categories: agency functions and general utility functions. While commercial banks do provide loans, it is not considered as one of their agency functions.

Agency Functions of Commercial Banks:

1. Collection of Dividends:
Commercial banks act as agents for their customers by collecting dividends on their behalf. When individuals or companies invest in shares of a company, they receive dividends as a return on their investment. Commercial banks collect these dividends and credit them to the accounts of their customers.

2. Collection of Cheques and Drafts:
Another agency function of commercial banks is the collection of cheques and drafts. When individuals or businesses receive payments in the form of cheques or drafts, they deposit them in their bank accounts. The commercial bank acts as an agent and collects the amount on behalf of the customer, adding it to their account balance.

3. Acting as Trustee or Executor:
Commercial banks also provide services as trustees or executors. When individuals want to create a trust or appoint an executor for their estate after their demise, they can appoint a commercial bank to fulfill these roles. The bank acts as a trustee, managing the assets of the trust, or as an executor, carrying out the instructions stated in the will of the deceased.

4. Acting as a Registrar:
Commercial banks also act as registrars for various financial instruments. They maintain records of shareholders and the transfer of shares for companies. When individuals buy or sell shares, the commercial bank updates the ownership records accordingly.

General Utility Functions of Commercial Banks:
Apart from agency functions, commercial banks also perform general utility functions, which include:

1. Providing Loans:
Commercial banks provide loans to individuals, businesses, and the government. These loans are essential for various purposes such as starting a business, purchasing a home, or funding government projects. However, providing loans is not considered an agency function.

2. Accepting Deposits:
Commercial banks accept deposits from individuals, businesses, and the government. These deposits can be in the form of savings accounts, fixed deposits, or current accounts. Banks use these deposits to lend money and earn interest on them.

3. Issuing Letters of Credit:
Commercial banks issue letters of credit, which are used in international trade. Letters of credit guarantee payment to the seller upon meeting certain conditions. This helps facilitate smooth transactions between buyers and sellers across different countries.

4. Providing Foreign Exchange Services:
Commercial banks also provide foreign exchange services, enabling individuals and businesses to convert one currency into another. This is particularly useful for international travelers, importers, and exporters.

In conclusion, while commercial banks perform various agency functions such as collecting dividends, cheques, and drafts, acting as trustees or executors, and acting as registrars, providing loans is not considered one of their agency functions.

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