A bank was originally ..a. bench set up in the marketplace for ... exchange of money. In a commercial sense, a bank is .an.. establishment where money is received on
deposit to be repaid on demand or at notice, as may be arranged, and where
loans are negotiated, bills discounted, and general financial business
transacted. The main functions of..a. modern commercial bank are:
• to receive money on current accounts repayable on demand, or on deposit
accounts repayable subject to an agreed notice;
• to lend money by granting loans and overdrafts or discounting bills
of exchange and promissory notes.
Apart from these two chief functions – linking up lenders and borrowers of
capital – the bank performs many other functions:
• .obtaining and giving information as to the financial standing of
customers:
• transferring funds for payments or investments;
• making foreign currency transactions;
• issuing letters of credit, drafts and travellers' cheques;
• undertaking duties of. agents, trustees and guarantors;
• performing leasing and factoring operations and others.
A very important part of any efficient banking system is an interbank market.
Some banks get more deposits than requests for loans, and vice versa. The
interbank market smoothes out these imbalances by providing a way for a bank
with too many deposits to pass them on toa bank with too many loan requests.
In London there are different interbank markets for different currencies and for deposits with different maturities. Of these, the Eurodollar interbank market is particularly important, and LIBOR (the London interbank offered rate) is the key dollar rate for all the world's international borrowing and lending.