Business Finance · Chapter 1
Study notes aligned to the official NEB syllabus.
A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through the capital market. A bank is the connection between customers and capital.
Every country has its own central bank, generally regulated by a special act. A central bank is the supreme financial institution that manages the currency of a country (or group of countries) and controls the money supply, that is, the amount of money in circulation. The central bank of Nepal is Nepal Rastra Bank (NRB).
A commercial bank is a financial institution that accepts deposits, grants loans, and makes investments with the main motive of earning profit. It accepts deposits in the form of current, saving, and fixed accounts, and lends money in the form of term loans, business loans, etc. Nepal Bank Ltd is the first commercial bank in Nepal.
Development banks are financial institutions engaged in the development of a specific sector of the economy. They provide financial, technical, and managerial assistance to different sectors such as industry, agriculture, tourism, etc. Development banks are graded 'B' level financial institutions.
A cooperative bank is a financial entity that belongs to its members, who are at the same time the owners and customers of the bank. Cooperative banks are based on cooperative values such as self help and self responsibility. There are more than 3,000 cooperatives in Nepal.
Saving banks are established to create the saving habit among people. They are helpful for salaried people and low income groups. The deposits collected from many customers are invested in bonds, securities, etc.
Exchange banks are mainly concerned with financing foreign trade. Their various functions include:
Although there is no separate foreign exchange bank in Nepal, such work is done by NRB.
Merchant banks are financial institutions that deal with international finance for multinational companies. They do not deal with the general public. They may be involved in issuing letters of credit (LOC). Merchant banks help corporations issue securities through private placement, which requires less regulatory disclosure and is sold to knowledgeable investors.
An industrial bank, also known as an investment bank, mainly meets the medium term and long term financial needs of industry. Its main functions are:
Banking can be defined as the business activity of accepting deposits and money owned by others and then lending this money in order to earn a profit. The main functions of a bank are: