Finance Unit test

Syllabus
1) Types of Banks
2) Reserve Bank of India RBI
3) Commercial Bank and banking system
4) Rural Regional Bank

There are 4 types of banks in india-

Central bank
Commercial Bank
Cooperative Bank
and Regional Rural bank

**Reserve Bank of India (RBI)

RBI is a central bank which controls the monetary policy concerning the national
currency which is the indian rupee

Basic function of RBI are-

Issue of currency
Sustaining monetary stability in india
and operating and maintaining the country's credit system

RBI also supervises or regulates banks and non banking system like currency and
payment system while
carrying this operations they also earn profits

RBI Is the pillar of surging indian economy and also a member of International
Monetary Fund (IMF)

** 1935, 1st april RBI Was established in calcutta and in 1937 it was permanently
moved to mumbai and in 1949 it got
nationalized after independance.

Functions of RBI-

Monetary authority
Regulates the financial system
Manage foreign exchange
issue of currency

**Commercial Banking system

Commercial bank is a typical financial institution that accepts as well as deposits

from the general public.
and also give loans for consumption activities and investment activities to make
their own profit

Commercial banks are profit based institution that offer financial services like
loans as well as services like
deposits and electronic transfer of funds

They have a significant role in a country s economy as these organizations fulfil

the short and mid term financial requirements
The functions of commercial banks are primarily based on a business model of
accepting public deposits and utilizing that funds which
are further classified into Primary functions and secondary functions.
Commercial bank example - State bank of India, Punjab national bank, Bank of baroda

Primary functions-

Accepting deposits
savings deposits
fixed deposits
current deposits
providing loans and
credit creation

Secondary functions-

Providing locker facilities

dealing in foreign exchange
exchange of secuirities
Discounting bills of exchange
bank as a agent

Types of commercial banks

Public sector banks

Private sector banks
foreign banks

Regional Rural Banks -

RBBS are government owned scheduled commercial banks of india which operates at
regional level of india
Under the ownership of Ministry of Finance
They were created to serve rural areas with basic banking and financial services,
However
RBBS also have urban branches

Unit 1 OF Finance
Features, Functions and types of finance

Finance is called the life blood of a buisness concern. If finance does not flow to
a buisness concern then that firms becomes
ineffective as a buisness concern, Profits, growths are also affected

Finance assits in the formation of new buisnesses and allows buisnesses to take
advantage of opportunities to grow and expand.
thats why finance also contributes in creating employment opportunities and raise
income levels in the economy

Defination of Finance - Finance is monetary resources comprising debt and ownership

funds of the state, company or person
Finance can be defined as activity concerned with resource allocation as well as
resource manangement and investment

Features of Finance-
1.A branch of the economics
2.Finance is a process
3.Money and finance
4.Composing elements
5. Flow of finance
6. Forms.
7. Sources
8. Purpose

Functions OF finance -

Acquisation and allocation of funds

Channelization of funds
Optimal mix of funds
Creation of investment opportunities
Internal controls
Maximization of profits
Future decision making
Helps increase cash flow

Types of Finance

On the basics of duration -

1. Short term
2. Meduim term
3. Long term

On the basis of users-

1. Public Finance
2. Private Finance
3. Corporate Finance

On the basis of Source-

1. Equity finance
2. Debt Finance

On the basis of mode of delivery-

Direct Finance
Indirect Finance

**Evolution of Commercial Bank and banking system in India before independace**

There were almost 600 banks present in india before independance.

The first bank to be establish was "The bank of Hindustan" founded in 1770 in
calcutta
later closed in 1832

*The oudh commercial bank was India first commercial bank in the history of
evolution of banking in india
Few other banks were also establish in 19th century such as
Allahabad Bank (1865) and Punjab national bank (1894)
Some other banks like bank of bengal, madras and bombay establisged at mid 1800s
got merged into one to become a imperial bank which later became the state bank of
india

*Post independace phase*

The evolution of banking system in india continued pretty much same as before
then in 1969 the government of india decided to nationalise the banks under the
banking regulation
act of 1949 . Total of 14 banks were nationalised including RBI

*Liberalization, Privatization, and Globalization (LPG ERA 1991 TILL DATE)

From 1991 onwards there was a sea change in the indian economy. The government
invited private investors
to invest in india. 10 private banks were approved by RBI. For eg - HDFC, Axis bank

After that RBI and the government treated public and private sector banks equally
Small finance banks were permitted to set up their branches throughout india and
payments banks came into existence

Negotiable Instruments

Negotiable instrument is a document guaranteeing the payment of a specific amount

of money, either on demand
or at a set time whose payer is usually named on the document. More specifically it
promises the payment of money
without condition which may be paid either on demand or at a future date.

*Negotiablle Instrument act, 1881

Promissory note

A promissory note is a financial instrument that contains a written promise by one

party(Note issuer or maker)
to pay another party (the notes payee) a definite sum of money either on demand or
at a specified future data

Bill of exchange

Bill of exchange is an instrument in writing containing a unconditional order

signed by the maker
directing a certain person to pay on demand or at fixed or future time a certain
sum of money only or order of
the certain person or the bearer of the instrument

Finance is that buisness activity which is concerned with the acquisition and
conservation of capital funds
in meeting the financial needs of people and buisness enterprises
-