2. Explain the functions of commercial banks with an example of each.
Solution:
The following functions are performed by commercial banks:
(i) Collection of deposits: Banks accept various types of deposits from the public such as savings account deposit, current account deposit and fixed account deposit, and pay interest on them. They are indebted to repay the depositor the amount deposited by him or her.
(ii) Lending of funds: Banks grant loans and advances on the basis of the total deposits available with them. These advances can be in the form of overdrafts, discounted trade bills, cash or consumer credits, etc. The interest charged on these loans is a major source of profits for banks.
(iii) Extension of cheque facility: Cheques drawn on other banks are also collected by banks, and thus they act as a clearing house. Cheques are mainly of two types—bearer cheques (encashable immediately at bank counters) and crossed cheques (only deposited in the payees’ accounts).
(iv) Remittance of funds: Banks help in transferring the funds of customers from one place to another. These transfers can be done in the form of bank drafts and pay orders at nominal commission charges.
(v) Provision ofallied services: In addition to other functions, banks also provide services such as locker facility, underwriting services and bill payments. They also perform functions such as buying and selling of shares and debentures on behalf of their customers.
3. Write a detailed note on various facilities offered by Indian Postal Department.
Solution:
The Indian Postal Department provides the following types of facilities.
Financial facilities: Post offices provide a variety of savings facilities to the public. Some of these schemes are mentioned below:
(i) Public Provident Fund (PPF)
(ii) Kisan Vikas Patra
(iii) National Saving Certificate (NSC)
(iv) Recurring Deposit Scheme
(v) Fixed Deposit Scheme
(vi) Money order facility
Mail facilities: Mail facilities primarily include the following three kinds of services:
(i)Parcel facilities: They facilitate the movement of an article from one place to another.
(ii) Registration facilities: They provide security to the article being transmitted.
(iii) Insurance facilities: They cover the risks involved in transmission by post.
Some of the mail facilities provided by the banks are as follows:
(i) Post cards: It is the cheapest form of postal service.
(ii) Letter: It ensures the secrecy of the information conveyed, and is placed in an envelope.
(iii) Registered post: Registered post ensures that the mail registered is delivered to the addressee or returned to the sender if it is not delivered.
Allied facilities: Post offices also provide a variety of allied services to customers.
(i) Passport service: Post offices accept passport applications on behalf of the Ministry of External Affairs.
(ii) Media Post: These include aerograms and letters through which the corporate companies can advertise their brands.
(iii) Direct Post: These include brochures, questionnaires, pamphlets and CDs/floppies through which addressed as well as unaddressed advertisement can be delivered.
(iv) Speed Post: It involves fast and speedy transfer of articles to the addressees within a specified period.
4. Describe various types of insurance and examine the nature of risks protected by each type of insurance.
Solution:
Insurance can be classified into the following three types:
(i) Life Insurance
(ii) Fire Insurance
(iii) Marine Insurance
Life Insurance:
Life insurance is a contract between the insurer and the insured in which the insurer agrees to pay a certain pre-specified amount to the insured on the occurrence of death of the assured or on maturity of the insurance contract, whichever comes earlier. That is, in case the insured dies before the maturity of the contract, his or her family is given the assured amount. However, if the insured survives till the maturity of the contract, then he or she is given the specified sum of money. In return for this assurance, the insured pays a fixed amount as premium to the insurer. The need for a life insurance policy arises because of the uncertainties of life.
Thus, life insurance policies protect us from the following two types of risks:
(a) Risk of dying too early
(b) Risk of dying too late
Fire Insurance:
Insurance contracts that protect the insured against the loss or damage caused by fire during a given period are called fire insurance contracts. Under a fire insurance contract, the insurer agrees to compensate the insured for the loss or damage to the insured property caused by fire, against a payment of a fixed premium. The maximum compensation which the insurer is liable to pay is pre-specified in the contact, along with the conditions under which the contract is enforceable.
Marine Insurance:
A marine insurance contract protects the owner of a ship or cargo against complete or partial loss or damage caused to the ship or cargo at sea. It provides protection against the perils of the sea such as collision of the ship with a rock, attack on the ship by enemies and pirates, and damage caused by fire. The insured pays a certain amount as premium to the insurer.
5. Explain in detail the warehousing services.
Solution:
Warehousing involves storing goods in a scientific and organised manner to maintain their value and quality for a longer period of time. The place where goods are stored is known as a warehouse. Warehouses not only provide storage services but also logistical services by providing the right place for the right quantity at the right time at the right cost.
The following are some of the functions performed by warehouses:
(i) Consolidation: The foremost function of a warehouse is to pool the goods or raw materials from different plants and dispatch them at the same time to different customers in one shipment. This reduces the time and cost of shipment.
(ii) Bulkbreaking: Warehouses often receive goods or materials in bulk from production plants. These bulk quantities are then divided into smaller quantities, which are later delivered to different customers according to their requirement.
(iii) Stockpiling: It is the most important function performed by a warehouse as it facilitates the storage of goods and raw material that are not required for immediate sale or manufacturing. It also ensures that the goods are protected from any spoilage or damage caused by sun, rain, pests, theft, fire, etc.
(iv) Price stabilisation: In situations of varying demand and supply of goods, warehouses help in stabilising the prices of goods. That is, in the case of excess supply, warehouses store the excess quantity. This prevents the prices from falling and helps in price stabilisation. Similarly, in times of scarcity, goods can be released from warehouses to control a rise in prices.
(v) Value-added services: Warehouses perform value-added services for producers such as grading the quality of goods, packaging and labelling, in case stored packages are opened by buyers for inspection.
(vi) Financing: The owner of the goods or raw materials stored in a warehouse can use the warehouse receipt as security for borrowing money from banks or other financial institutions.
