(1) Acceptance of Bill : Every bill has to be accepted by the drawee : It should be noted that it is the creditor who draws a bill on the debtor, thus the creditor becomes the drawer, and the debtor, drawee. It is made payable to a payee; drawer himself may be the payee. After the drawer has prepared the draft, it is then sent to the drawee for acceptance. It should be noted that a bill prior to acceptance, is known as draft. Acceptance is simply an indication on the part of the drawee of his accepting the liability under the bill. This is done by drawee by signing his name across the face of the bill, together with the place and date. A bill of exchange after acceptance is known as an acceptance for the drawer than it becomes as bill receivable and for the drawer a Bills payable. An acceptance may be general or qualified. When the acceptor writes down his acceptance without any qualification, the acceptance is known as general acceptance. He may, however, write down the name of the bank where it is payable. The place of payment of the bill is known as its domicile. When the drawee adds some conditions or qualifications to the bill while accepting it, the acceptance is known conditions as qualified acceptance.
(2) Creation of Credit: Creation of credit is a major function of a commercial bank. When a bank creates credit or advances loans, there tends to be a multiple expansion of credit in the banking system. It is open secret that banks do not keep cent per cent per cent reserve against deposit. Bank is not a clock room where you can keep your currency notes or coins and claim those very notes and coins back when you desire, -It is generally understood that money received by the bank is meant to be advanced to others. A depositor has to be content simply with the banks promised or undertaking to pay him back whenever he makes a demand. The banks are able to do this with a very small reserve because all the depositors do not come to withdraw money simultaneously. Some withdraw, while others deposit and so it creates a vast superstructure of credit on the basis of small cash reserve. The bank is able to lend money and charge interest without parting with cash. The bank loans create a deposit or create a credit for the borrower. Similarly the bank purchase securities and pays the seller with its own cheque which again is no cash; it is just promise to pay cash.
