Commercial Bank

Commercial Banks are the most common types of banks. These are the chiefly engaged in receiving deposits, advancing loans and discounting bills. They lend money for short period against easily marketable securities. They finance internal trade, deal with credit instrument and render other numbers of services to their customers and play a vital role in the commercial development of the country.

Businessman and salaried persons are provided the facility of operating bank accounts. They settle their accounts by issuing cheques. Those commercial banks who become the member of the central bank are known as scheduled banks.

Methods of Issuing Currency

Various methods have been tried during last hundred years or so to make the system elastic and scientific. Following are some important methods or systems of note issue which were prevalent in different countries of the world in different times:

1. Fixed Fiduciary Reserve System: Under it, currency is issued up to a certain amount without any reserve of gold, but against government securities. However, when currency is needed more than the fixed level it must be backed up by gold penny for penny. This method was adopted by Japan and Norway in early twentieth century.

2. Proportional reserve system: This system calls for a proportionate gold and silver reserve to the total issue of currency. It allows increase or decrease of the ratio as the need be. Due to strong benefits it has become internationally accepted currency-issuing system.

3. Minimum Reserve System: This system was adopted by Holland and the Union of South Africa. This system prescribes merely a minimum percentage of gold reserves against notes and deposits and makes the notes a first charge on all the assets of the central bank.

Clearing House

Dr. D. Cock Says, “Clearing house is that department of central bank where the representative of member banks and financial institutions gather to clear their accounts.”

Clearing house is a place at the central bank or any other leading bank of the locality where the representatives of the member banks come at fixed time and exchange cheques or drafts drawn on each other and settle the resulting balances through entries in the books of the bank acting as clearing house.

The central bank manages and supervises the clearing house to facilitate the clearing of cheques between banks. Every bank usually receives number of cheques drawn on other banks from his customers as deposits.

Bank Deposit Accounts

The first function of commercial bank is to receive deposits. Usually, the customers can deposit their money in several kinds of bank accounts. Some of them are as follows:

1) Fixed Deposit Account: This account is opened for a definite period of time without the expiry of which the amount cannot be withdrawn. The rate of interest is higher than that of savings account. The greater the period for which money is deposited the higher the interest rate is offered.

2) Savings Account: It was introduced by the banks for those who have low incomes and small savings. Those who open it include students, salaried persons, and small traders.

3) Current Account: It is the most popular form of bank account. Current account is operated by businessman. In this account the customer is authorized to deposit or withdraw money any time in or from the bank. The bank does not pay any interest.

Economic Goals

Economic policies are made to achieve following economic goals.
• It means to produce better goods and services and to develop a higher standard of living of the people.
• To provide suitable jobs for all citizens who are willing and able to work.
• To achieve maximum fulfillment of wants, using available productive resources.
• To avoid large upswings in general price level that is to avoid inflation and deflation in the economy.
• To guarantee that business, workers and consumers have a high degree of freedom in their economic activities.
• To ensure that no group of citizens faces poverty while most enjoy abundance of wealth.
• To provide for those who are disabled, chronically ill, aged, laid off from jobs or otherwise unable to ear minimum levels of income.
• To have overall balance of payments in international trade and financial transactions.

How Credit is Created

Now suppose, a person deposits $1000 with a bank, ten percent of which will go to the central bank as such reserve requirement. Hence the commercial bank is left with $900 to be used for advancing loans. The party ‘A’ that borrows this $900 will either buy goods from or make payment to the other party B. The party B will receive the cheque for $900 and deposit it its account with the same commercial bank. Now the bank receives the deposit of $900. Ten percent of this amount ($90) will as usual go to the central bank and the rest of the amount ($810) will be utilized in advancing loans. At this stage the bank has net deposit of $1710 ($900+ $810), though the original deposit is $1000. In this fashion the credit money will go on increasing at every transaction. If the original deposit is $1000 the extent of credit expansion will be $10,000.

Economic Wants

Economic wants means desire for goods and services. The attempt to satisfy wants forms the basis of all economic activity. A desire of a person cannot become want until he has money to purchase and is also willing to give away for that good. Economic wants are fulfilled by consumptions of goods and services.

Necessities of life are basic needs of a person, without which our life is not possible. These include ordinary food, clothing and shelter. Comforts of life make life easy and comfortable. These wants increase efficiency of a person. These wants include better food, comfortable bed and transport facilities. Luxuries of life are neither necessary nor they increase efficiency of a person. These wants include an expensive car, big bungalow etc. These wants are for pomp and show and for mental satisfaction of a consumer.

Economic wants are unlimited, after fulfilling one want another want comes up, hence there is no end to them. Wants once fulfilled, never ends, they are repeated again and again. Some wants are felt urgently than others. Some of them cannot be postponed while others can be postponed. Some wants can be fulfilled with the use of alternative goods.

Economic Policy

Economic policy and economic analysis are closely related. All economic policies are adopted on the basis of economic theories. The creation of policies to achieve specific goals is not a simple matter.

First step is to make a clear statement about economic goals. If we say that we want full employment, do we mean that everyone between 16 and 65 years of age should have a job? Or do we mean that everyone who wants to work should have a job? Therefore economic goals must be specific.

Next step is to formulate alternative policies to achieve the goal and determine the possible effects of each policy. This requires a detailed assessment of economic impact, benefits, costs and political feasibility of alternative policies.

After implementing policy we need to check how well it worked. Only through unbiased evaluation we can improve on economic policy. These policies are augmented at a more specific level by measures designed for industrial investment, research and development and to protect consumer’s interests.

Creation of Credit

Creation of credit is one of the most outstanding function of modern banks. The commercial banks create multiple expansion of their bank deposits and due to this say have sometimes been called manufacturers of credit. The notes and currency issued by the central bank is not the only form of money. The supply of money also includes some sort of credit money in addition to real cash money.

The commercial banks extend loans by much more than the amount of cash possessed by them. This tendency of deposit making by customers and lending more loans by bank in excess of its fund is called ‘creation of credit’.

Customer

It is clearly established that the word “customer” generally denotes a relationship resulting from habit or continued dealings, but for a bank customer this habit of dealing is not essential. The person who has an account with a bank is known as an account holder or customer of that bank.

According to Lord Lindly:
“A customer is a person who has some sort of account, either deposits or current account or same other relationship with a banker.”

According to Dr. Hart:
“A customer is one who has an account with a banker or for whom a banker habitually undertakes to act as such.”

Law of Demand

When price of a good goes up, people buy less of it and when prices goes down, people buy more it, other things being unchanged, it is called Law of Demand.

Prof. Alfred Marshall states the law of Demand as under:
“For the higher sale of the amount of a commodity, its price should fall or when the price falls, the quantity demanded increases and on the contrary, when the price rises, the demand falls provided other things remain the same.”

If different factor like consumer’s income, taste of the consumer, traditions, fashion, habits, prices of the substitute goods etc. will change, the Law of Demand will fail to operate.

What is Demand?

The word ‘demand’ is used as a term in Economics. Common meaning of word ‘demand’ is ‘desire’ but there is a difference in ‘desire’ and ‘demand’ as a term in Economics. If any thing is desired only, it will not be called demand in Economics. The desire, to become a demand, should have the backing of purchasing power or money.

The desire to purchase any thing depends on the demanded price of the commodity. The higher is the price, lower will be the demand. On the contrary, the lower is the price lesser will be the demand. No one can decide about the quantity or amount of a commodity to purchase so long he does not know about the price of the same.

The price that a buyer wants to pay for a certain quantity of a commodity is called ‘Demand Price’. The term ‘Demand’ may be defined as “The human desire of a commodity is called Demand which has support of purchasing power.”

Role of Central Bank in Economic Development

The economic stability of a country is solely dependent on the central bank. It is the only financial institution in the country which is responsible for regulating the banking and monetary system of the country. The need of central bank in a country is essentially felt considering the following services rendered by a central bank for economic development of a developing country.

1. Capital Formation: Economic progress of a country requires adequate amount of capital. Capital is required for agriculture, industrial and commercial development. But in a developing country, it is a chronic problem to procure capital. Central bank as a national institution plays prime role in capital formation in the interest of the nation as a whole. As the guardian of the money market, it regulates the capital flow in the country in proper form and suitable time.

2. Credit Control: Credit is one of the most important source of financing trade and industry. The central bank as the controller of credit can encourage a particular sector of economy by adopting selective credit control.

3. Stability in Prices: The central bank keeps the price level stable in the country by controlling money and credit supply.

Weapons of Credit Control (Qualitative Controls)

1. Direct Action: The central bank may take direct action against commercial banks that violate the rules, orders or advice of the central bank. This punishment is very severe of a commercial bank.

2. Moral persuasion: It is another method by which central bank may get credit supply expanded or contracted. By moral pressure it may prohibit or dissuade commercial banks to deal in speculative business.

3. Legislation: The central bank may also adopt necessary legislation for expanding or contracting credit money in the market.

4. Publicity: The central bank may resort to massive advertising campaign in the news papers, magazines and journals depicting the poor economic conditions of the country suggesting commercial banks and other financial institutions to control credit either by expansion or by contraction.

Weapons of Credit Control (General methods)

1. Bank Rate Policy: Bank rate is the rate of interest which is charged by the central bank on rediscounting the first class bills of exchange and advancing loans against approved securities. This facility is provided to other banks. It is also known as Discount Rate Policy.

2. Open Market Operations: The term “Open Market Operations” in the wider sense means purchase or sale by a central bank of any kind of paper in which it deals, like government securities or any other public securities or trade bills etc. in practice, however the term is applied to purchase or sale of government securities, short-term as well as long-term, at the initiative of the central bank, as a deliberate credit policy.

3. Change in Reserve Ratios: Every commercial bank is required to deposit with the central bank a certain part of its total deposits. When the central bank wants to expand credit it decreases the reserve ratio as required for the commercial banks. And when the central bank wants to contract credit the reserve ratio requirement is increased.

4. Credit Rationing: Credit rationing means restrictions placed by the central bank on demands for accommodation made upon it during times of monetary stringency and declining gold reserves. This method of controlling credit can be justified only as a measure to meet exceptional emergencies because it is open to serious abuse.

Objectives of Credit Control

The central bank makes efforts to control the expansion or contraction of credit in order to keep it at the required level with a view to achieving the following ends.

1. To save Gold Reserves: The central bank adopts various measures of credit control to safe guard the gold reserves against internal and external drains.

2. To achieve stability in the Price level: Frequently changes in prices adversely affect the economy. Inflationary and deflationary trends need to be prevented. This can be achieved by adopting a judicious of credit control.

3. To achieve stability in the Foreign Exchange Rate: Another objective of credit control is to achieve the stability of foreign exchange rate. If the foreign exchange rate is stabilized, it indicates the stable economic conditions of the country.

4. To meet Business Needs: According to Burgess, one of the important objectives of credit control is the “Adjustment of the volume of credit to the volume of Business” credit is needed to meet the requirements of trade an industry. So by controlling credit central bank can meet the requirements of business.

Credit Control

Credit control is one of the principal functions of the central bank. Credit money expands through commercial banks by means of cheques. Credit plays an important role in maintaining and changing the price level as a medium of exchange. It is the responsibility of the central bank to regulate the volume of credit and its direction to maintain stability of the price level.

Credit control means, regulating the volume and direction of bank loans. On the volume of credit depends largely the level of employment and the level of prices in the country.

Secondary Functions of Commercial Banks

Secondary functions are two types:
1. Public utility services
2. Agency services

Public Utility Services: The commercial bank renders money services for the general utility of the community. These services may be enumerated as follows:

• Bank drafts and cheques issued on banks are freely used for receipts and payments in the society. These cheques and drafts economies the use of currency notes and coins for transacting business.
• Commercial banks play a significant role in transferring money. This service is reliable, quick, safe, and inexpensive.
• Commercial banks also issue Letter of credit. It is an open latter from a bank requesting the sellers to send the goods to the buyer and promises to pay the sum by itself.
• Banks offer lockers for the safe custody of precious items. The bank also charges some amount.

Agency Services: Commercial banks also perform the duty of an agent. It collects and pays on behalf of their customers in respect of the following:

• Businessman receives cheques in payment from other parties. These cheques may be drawn on other banks than theirs. They deposit these cheques and with their banks and get the payment. The bank also receives payments against electricity, gas, phone bills from customers. It also receives and pays premiums, dividends, interests, and rents on behalf of its clients. This is most valuable service that the bank performs for its clients.
• On the instructions of its clients the bank buys and sells shares and bonds on the stock exchange.

Primary Functions of Commercial Banks

Functions of commercial banks can be divided in to two categories:
1. Primary functions
2. Secondary functions

Primary functions can further be subdivided into the following:
1. Receiving deposits
2. Advancing Loans

1. Receiving Deposits: This is the function of the formation of capital. A commercial bank receives deposits through different types of accounts. Small savers, salaried people, traders, manufacturers and other deposit their money with the bank under the head of savings, current, or fixed deposit accounts and earn interest income.

2. Advancing Loans: The commercial bank finances the need of businessman in meeting their day to day business requirements. Advances form about sixty percent of investment made by a commercial bank. It is most profitable on the part of the bank.

In our next post, we will describe the secondary functions of Commercial banks.

Capital of a Company

The share capital of a company can be of the following divisions:
Authorized Capital: It is the amount, which has been mentioned in the memorandum of association. It is also the amount which is sanctioned by the controller of capital issue. Authorized capital empowers the company to issue share capital up to that limit and not beyond that.

Issued Capital: Issued capital represents the amount of the capital which has been issued.

Subscribed Capital: It is the sum total of applications received from public in response to prospectus issued. The subscribed may be more than, equal to or less than the issued capital.

Called up Capital: It is that part of issued capital which is called up from the applicants / shareholders. The company may call up the whole of the amount or less. In case the company calls less than the face value of the shares, the shares are said to be partly called-up.

Paid-up Capital: Paid-up capital is the amount of which actual payment has been made by the shareholders.

Non-Scheduled Banks

The banks which are not registered in the list of central bank under its charter are known as non-scheduled banks. They are not bound to perform banking services according to the policies and instructions of central bank e.g. Bank of Punjab was a non-scheduled bank.

These banks do not fulfill the required qualifications of a scheduled bank as prescribed by the central bank. They also do not enjoy the public confidence. In many countries, many non-scheduled banks are also working.

Scheduled Banks

The word ‘Scheduled’ means a list. The banks which are registered in the list of central bank under its charter are called scheduled banks. They provide banking services according to the policies and instructions of central bank.

In other words scheduled banks are those which by virtue of financial position are included in the schedule of the banks maintained by the central bank. Every scheduled bank has to fulfill certain conditions. It is also known as a member bank.

Economics as an Art

Science is a theoretical aspect whereas Art is a practical aspect. In economics we study consumption, production, public finance etc. which provide practical solutions to our daily economic problems. Study of cause and effect of inflation or deflation falls within the purview of science but framing appropriate and suitable monetary and fiscal policies to control inflation and deflation is an art.

Lionel Robbins used the word science for Economics. He says Economics is a science, which studies human behavior as a relationship between ends and scarce means which have alternative uses. According to Keynes study of fiscal & monetary measures and their application to solve problems of unemployment, depression, and inflation etc for promoting welfare of human being makes economics an Art.

Economics as a Science

Economics, like other social sciences, make little use of laboratory methods in which changes in variables can be explained in controlled conditions. Economics usually have to examine what has already happened in the past in the real world in order to test their theories. If a simple model can explain observed behavior repeatedly, it has some value, for example, law of demand explains cause and effect relationship between price and demand for a good.

Economics is not an exact science because it depends upon economic behavior of a man and behavior of a person is complex and unpredictable. Economics is a social science, which is concerned with proper use and allocation of resources for achievement and maintenance of growth with stability.

Functions of Central Bank

The central bank is the private of all the banking system. The chief functions of a central bank may be described as follows:

1. Issuing Notes: The central bank has the sole responsibility and monopoly of issuing notes within the country. It is the sole currency authority. The central bank is required to keep a certain percentage of gold reserves against issue of notes.

2. Government’s Bank: The central bank acts as a financer of the government. It keeps the government funds in the custody free of interest. It helps the government in designing a fiscal policy for the country so it also plays the role of financial advisor to the government.

3. Banker’s Bank: It acts as the custodian of cash reserve or balances deposited compulsorily by the scheduled banks. Either by law or custom the member banks have to keep certain portion of their deposits with the central bank as reserve.

4. Credit Control: Probably the most important function performed by the central bank is that of controlling the credit operations of commercial banks. Control of credit means the regulation and control of bank advances.

5. Clearing House: It is the “Clearing House” of the banks. Under this function central bank facilitates the settlement of bills and cheques of other banks.

6. Exchange Control: It is the responsibility of the central bank to control foreign exchange and maintain the rate of exchange. It prepares the balance of payment accounts of the country, and helps the government to keep the balance favourable.

7. Custodian of National Reserve: It is the central bank which serves as the custodian of a nation’s reserves of gold and foreign exchange. It is its duty to take appropriate measures to safeguard these reserves.

Exchange Bank

Exchange bank deals mainly in the finance of the foreign trade of the country. It deals in foreign exchange. On the other hand, the main function of such bank is to buy and sell foreign currencies, rather titles to foreign exchange, drafts, telegraphic transfers etc. It purchases the bill of exchange which arises in connection with the import and export trade of the country and they deal in exchange.

The exchange banks liquidate the international indebtedness by exporting and importing precious metals and securities, if necessary. They purchase bills and in the international money market and deposit those with their banking agents in big commercial centers like London, Paris, New York etc. They draw and sell their own drafts on these deposit accounts.

Central Bank

A central bank is the most important institution of the country which is responsible for safe-guarding its financial stability and thus it is guided not by profit motive but by the principle of maximum welfare of the society.

It controls and monitors all the activities, directly or indirectly of all other banks. It holds the ultimate reserves of the nation, controls and supply of money and acts as the banker to the state. It performs many other important functions. It sees that the monetary policy is formulated as according to the conditions of the economy and sees towards its implementation. It issues notes and currencies within the country and is entrusted with responsibility of maintaining the price level in the country stable. It acts as bank to the government and it directly or indirectly controls the activities of all other banks.

What is Statistics?

Nowadays, the word statistics is defined in the following two senses:
1) In Singular Sense and
2) In plural Sense

In Singular sense it is defined as the "Body of Methods" consisting Collection, Presentation, Analysis and interpretation of Numerical facts or Data.

In Plural sense, it is always defined as the "Aggregate of Numerical Facts". For example, statistics of prices, statistics of wages, statistics of weights, statistics of births and deaths, statistics of males and females, etc.

Aggregate of Numerical Facts are also called "Statistical Data."

Bank Reconciliation Statement

Cash Book is one of the special books, which business organization generally maintain. Along with the receipts and payments of cash, Cash Book also shows deposits, cheque payments and balance of cash at bank. As the business keeps its bank account by maintaining cash book, similarly bank keeps the record of its account holder through maintaining Pass Book. For instance, a cheque deposited into bank is shown in both the record of business (i.e. Cash Book) as well as in the record of the bank (i.e. Pass Book). Similarly, if cheques are issued to a supplier and presented in bank, it will be recorded in Cash Book and also in the Pass Book.

Bank issues a statement of bank account to the account holder. The Cashier can check whether the records shown in bank statement are tallying with the records in his Cash Book. As the case stated above if the deposits and withdrawal are found correct both in Cash Book and the Bank Statement then there should be no difference between the balances of Cash Book and the bank statement. Nevertheless, the balances shown in the Cash Book and the bank statement are sometimes different. Why this difference? For example, The Cash book shows balance of $20,000 on January 31, 2007. A cheque for $10,400 was issued to a creditor. The creditor did not present the cheque to the bank by the end of the month. The Cheque was recorded in Cash Book when it was issued by cashier, but obviously it could not be recorded in Pass Book in January 2007. So the balance as per bank statement will not be $20,000 as the cash book shows.

That is why; Bank Reconciliation Statement is prepared to reconcile the differences between the balances of Cash Book and the Bank Statement.

Free Notes

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Depreciation of Fixed Assets

A fixed asset has a limited life. The allocation of its cost cover its useful life is termed either depreciation or depletion or amortization. These are explained as under:

Amortization:
The cost of fixed intangible assets, which has been used, is called amortization.

Depletion:
The exhaustion (physical shrinkage, lessening or waste) of a natural recources is called "Depletion". It is charged on the wasting fixed assets such as oil and mineral deposits etc.

Depreciation:
The cost of permanent fixed tangible asset, which has been used, is called "depreciation". It is charged on the permanent fixed assets such as machinery and equipment except land.

Depreciation expense must be recorded because it is one of the costs which are incurred in the production of periodic income. If depreciation was not recognized upon the books, the net income of the business would be overstated and depreciable asset would appear in the balance sheet at value greater than their real values.

Assets cost includes all expenses relating to the acquisition of asset and including it in the factory. The salvage value of a depreciable asset is that amount which can be expected to be realized upon retirement of an asset. The life of an asset may be expressed in terms of either an estimated time factor or estimated use factor. The time factor may be a period of month or years. The use factor may be a number of hours of service or number of units of output.

What is Fixed Assets?

All those assets which are purchased not for the purposes re-sale them and its service life are of longer duration. All assets are fixed assets which have the following silent characteristics:
• More or less permanent in nature
• Used in business operation
• Not held for the purpose of re-sale

Fixed assets are classified as under:
1. Tangible Fixed Assets: The examples are given below;

Plant & Equipment: land, building, machinery, tools, delivery equipment, office equipment and fixture. All the items are subject to depreciation with the exception of land, which is not depreciated in books.

Natural Resources: mines, timber tracts, oil and gas wells. These are subject to depletion.

2. Intangible Fixed Assets: The examples are given below:

Copyright, patents, etc. which have no physical existence but have got use-value. They are amortized over their expected useful life.

Goodwill and Trademarks are usually not subject to amortization, but to revaluation.

The cost of fixed assets includes purchases price plus all expenses incurred in connection with its acquisition and making it in a useable condition.

Basic Accounting Equation

Basic Accounting equation is based on the fact that business recources (Assets) are created through two sources:
• Owner's investment (Capital)
• Getting Loan (Liability)

For instance, Mr. John starts his business with the investment of $100,000. At this stage his books will show the position as:
Assets = $100,000
Capital = $100,000
The equation will show;
Assets = Capital

Afterwards, Mr. John is successful in getting loan from a commercial bank for $500,000. The position of business after getting loan is
Assets = $150,000
Capital & Liabilities = $150,000
It means:
Assets = Capital + Liabilities

Chart of Accounts

Chart of Accounts is grouped into five main categories:
1. Assets
2. Liabilities
3. Capital
4. Expenses
5. Revenues

Assets:
Assets are the recources of business, which a business utilizes to get future economic benefits. Assets are sub-grouped into two categories:
1. Current Assets
2. Fixed Assets

Current Assets:
Current Assets are recources, which a business usually utilizes with a year. Some of the current assets are: Cash in hand, Cash at bank, Bills Receivable, Notes Receivable, Inventory etc.

Fixed Assets:
Fixed Assets are recources of business, having a life more than one year. The assets purchased for resale are not included in Fixed Assets. Some of the fixed assets are: Land, Building, Machinery, Furniture etc.

Liabilities:
Liabilities are the Debts. Some of the examples of Liabilities are:
* Accounts payable- the parties from which goods are purchased on credit.
* Loan from Bank- usually provided by Commercial Banks.

Capital:
Capital is the amount which owner provides for operating business activities. Capital is increased when recources of business are increased when Owner additionally invests cash or other asset and the business earn profit.

Expenses:
Cost intended to benefit the near future like, Salaries, Rent, Bank charges etc.

Revenues:
The term Revenue stands for sale of product, service and merchandise or earnings from interest, dividends, rent etc, or gains from sale or exchange of assets. Some of the revenues are sales, rent income, commission income etc.

What is Accounting?

Accounting is the process, applied in a business which comprises recording the data, classifying and summarizing the data, presenting the results to the owner(s) of business.

During business, events like receiving cash from customers, payments to supplies, purchasing goods for sale out, sale of goods, salaries, wages and so on take place. These events as mentioned are generally called transactions. Every transaction concerned with receipt and payment of cash or otherwise, must be recorded in the books. The books in which such transactions are recorded are General Journal and Subsidiary Books like Cash book, Sales Journal, Purchase Journal etc.

The Transactions, which are recorded in General journal and Subsidiary books are then sorted and arranged for analyzing. Moreover, these individual accounts are balanced-off and list of these balances is prepared which is termed as Trial Balance. These records are kept for the purpose of calculating profit or loss. Likewise, they want to know how much the share of recources is owned in the business. Financial statements like Trading and Profit & Loss account and balance sheet are prepared for achieving these objectives.

After preparing financial statements, the finance/accounts managers clarify the business position to the owners. They convey to them the strong and weak points of the business.

Macro-Economics

Macro-economics, the other half of economics, is the study of the behavior of the economy as a whole. In other words, macroeconomics deals with total or big aggregates such as national income, output & employment, total consumption and the general level of price.

In the words of Boulding:
"Macroeconomics deals not with individual quantities as such but with the aggregates of these quantities, not with individual income but with the national income, not with individual prices but with the price level, not with individual outputs but with the national output."

Macro analysis is helpful in understanding the functioning of economic system because one individual's economic study is not helpful for framing any policy, hence whole economy's study and its analysis is important.

Micro-Economics

Micro-economics is that part of economic analysis which studies decisions of individuals and firms in economy. Microeconomics is the study of specific individual units, particular firms, particular households, individual prices, wages, income, individual industries, particular commodities etc.

In the words of Samuelson:
"In microeconomics we examine among other things how individual prices are set, consider what determines the prices of land and capital and enquire into the strength and weakness of market mechanism."

Microeconomics explains how consumers and producers take their decisions regarding allocation of productive recourses among various goods and services.

Economics By Lionel Robbins

Lionel Robbins claiming his definition of Economics to be precise, scientific and superior defines economics in his well known book "Nature and Significance of Economics, Science" (published in 1931) a "Science which studies human behavior as a relationship between ends and scarce means which have alternative uses."

This definition is based on the following four pillars:
1. Human wants referred to as ends by Robbins are unlimited. They increase in quantity and quality over a period of time. They vary among individuals and over time for the same individual. It is not possible to find person who will say that his want for goods and services has been completely satisfied.
2. The ends or wants are of varying importance. Man satisfies his urgent want first and less urgent after wards in order of their importan,ce.
3. According to Robbins, the unlimited ends and the scarce recourses provide foundation to the field of economics. If all things were freely available to satisfy the unlimited human wants, there would not have arisen any scarcity, hence no economic goods, no need to economies and no economic problem.
4. The fourth important proposition of Robbins definition is that the scarce recourses available to satisfy human wants have alternative uses. They can be put to one use at one time.

Economics by Alfred Marshall

Alfred Marshall was a professor at university of Cambridge. He wrote his book "Principles of Economics" in 1980. Marshall has emphasized on material welfare of an individual. He says that "Economics is a study of mankind in ordinary business of life. It examines that the part of individual and social action which is most closely connected with attainment and with use of material requirements of well-being.

Marshall was able to show how value is partly determined by marginal utility of a good and how intensity of want decreases with the units acquired. He gave concept of consumer's surplus, elasticity of demand and laws of returns.

Supply, demand, utility, equilibrium, short run and long run reflect on the astonishing fact that these concepts originally were presented by Alfred Marshall.

Economics by Adam Smith

Adam smith was a professor at university of Glasgow. He wrote his book, "An enquiry into the Nature and Causes of Wealth of Nations" in 1776. Adam Smith argued that if producer were free to seek profits by providing goods and services then the "invisible hand" of market forces would ensure that right goods and services were produced. He explained concept of Price system.

According to Adam Smith rights of private property and wealth are natural and moral rights. Adam Smith was in favor of accumulation of wealth and free trade policy. According to him "Economics is a study of causes of Wealth of Nations." He believed that trade in unregulated markets would maximize wealth of nations.

Definition of Economics

Economics is social science, which is concerned with the efficient use of scarce recourses to achieve the maximum satisfaction of economic wants. A basic understanding of economics is essential for well-informed people.

An understanding of basics of economic decision making and the operation of economic system enables businessman to increase profit. The businessman who understands when to use new technology, when to merge with another firm, and so on, will be in a position to earn more profit. Economics helps consumers and workers make better buying and employment decisions.

Since economics is a part of social science it includes sociology, psychology and political science. It is a study of how people make choices to satisfy their wants. In economics we examine situations in which individuals can choose how to do things, when to do things and with whom to do them. Ultimately the purpose of economics is to understand choices.

What is Debit Card?

Debit cards work like plastic cheques. When its owner makes a purchase with it, the payment for the purchase is taken directly from his bank account. If the owner's account has insufficient funds to cover the expense, his card payment will be declined.

Debit cards come in two varieties, online and offline. Online cards function like ATM cards, requiring its owner to enter a personal identification number (PIN) to initiate the immediate transfer of funds from his bank account to the merchant's bank account. In some countries, such as Canada, online debit cards are the only variety of debit cards that are accepted.

What is Charge Card?

Charge card are almost similar to credit cards but they don't have a monthly spending limit like $500, $5,000 etc. Its holder can make an unlimited number of purchases with his card, but he needs to pay back the entire balance in full each month or year as per policy.

Charge cards generally impose a fee and tack on penalties to discourage its holder from not paying back the balance. The cost of having a charge card is often significantly lower than the cost of having a credit card. For many consumers this is due to the interest related debt that can be racked up with the credit card.

What is Credit card?

It is a phenomenon that the credit card has become one of the essential needs of everyday life. People use it as they paper money. This is why it is called Plastic money as well.

Such a type of card can be defined as
"It is a particular style of card issued by an institution to its client on the basis of a special contract between the institution and the client. This card gives a tendency to its holder to purchase commodities or services on credit on behalf of the institution, from a particular space mentioned by the institution."

True credit cards have a set spending limit for example $1000, $5,000, $50,000, etc. based on the cardholder's credit rating and current income. If cardholder spends more money, his credit limit increases. If he chronically makes late payments on his monthly bills or skips payments either his limit will be reduced or his credit will be cut off, and the interest rate charged on the balance may be increased.

History of Credit Cards

The use of credit cards originated in the united states during the 1920s, when individual companies began issuing them to customers. This use increased significantly after World War 2, when veterans returned and looked forward to travel for business and pleasure. The first general purpose of credit card that could be used at a variety of stores and businesses was introduced by Diners Club, Inc., in 1950. In this system, the credit company charged cardholders an annual fee and billed them for their expenditures on a monthly or yearly basis. Another major card was established in 1958 by the American Express Company.

Later, the bank credit card system was introduced. The first national bank card plan was Bank Amricard, which was implemented in 1959 by the bank of America in California. The system was licensed in other sates starting in 1966 and was renamed Visa in 1976.

Now a day, it is generally used for purchasing items to pay for services, bills, fees, taxes etc. No doubt, the benefits of credit cards are so many that their importance and progressive role in this age of mischief cannot be denied.

Origin of Banking

Modern banking system, in practice, is spread over the whole civilized world from England. The banking system originated from the following three sources:

The Goldsmiths:
In ancient time, it was very difficult for an individual person to protect his wealth. So, some persons having the qualities of solvency, safety and safety, were trusted to keep money of the people as deposits. The depositors would be given slips as the proof of their deposits. With the reputation of gold smiths these slips were accepted by the people instead of money in transacting business. These slips were the origin of modern bank notes.

Money-Lenders:
Money lenders were those people who lend their own money to the people and earned profit in the form of interest. They were considered original bankers.

Merchants:
The merchants were considered respectable people due to good repute of dealings and strong financial background. These merchants mainly financed foreign trade by issuing slips through their agents. These slips were the origin of modern bills of exchange, bank's draft, letters of credit etc.

Importance of Banking

Bank plays a significant role in the economic development of the country. The whole economy of a country is absolutely dependent on the efficient and well-organized banking system. Industrial, agriculture and commercial progress of a country is not possible without a good banking system.

The importance may be defined as follows:

* Banks deal in foreign exchange by purchasing and selling foreign currencies and by issuing letters of credit.

* Banks play the prime role in accumulating capital by collecting the scattered savings of the people.

* Banks utilize their collected funds by advancing loans to commercial and industrial undertakings.

* Banks perform various agency services on behalf of their customers. They collect or make payment of bills of exchange, dividend, insurance premium etc.

Banking

It is very difficult to correctly define a bank, because a bank performs multifarious functions. Different kinds of banks having different functions may be defined in different ways according to their functions. A general and comprehensive definition to cover all types of banking institutions would be unscientific and probably impossible.

Now, Have a look at that some popular definitions of Banking:
According to Keynes:
"A bank is an institute which receives deposits and advances loans."

According to Kinley:
"An establishment which makes to individuals such advances of money or other means of payments as may be required and safely made and to which individuals entrust money or the means of payments when not required for use by them."

What is Commerce?

Commerce means the exchange of items of values or the process of distribution of goods and services. Commerce is the removal of goods and services from a place where they are produce and sent to the place where they are scarce and hence in demand. We may also define it as:

"The term commerce is applied to all these activities or functions which are intended to bring about an exchange of goods and services against money or money’s worth."

Commerce is divided into two basic parts:
1. Trade
2. Auxiliaries of trade

Trade:
Selling and buying of goods is trade. A mediation of the exchange of goods between the producer and the consumer is called trade. Trade is of two kinds:
a. Import
b. Export

Buying goods from out side the country is called import and selling of goods to other countries is called export. If imports of one country are higher than exports, it means the economy of the country falls down. The economy of every country is highly depends on its import/ export.

Auxiliaries of trade:
It means aids to trade. It includes the following services; banking, insurance, warehousing and agents.

History of Banking

It is very difficult to state the complete historical background of banks or banking. It is not possible to learn when and how the banking system came into existence. Mankind has always been seeking security and protection. This need has led him to scientific and technological development on one hand, and banking development on the other.

The name bank derives from the Italian word banco which means "desk/bench". Man has always found himself in the pursuit of safety and convenience. If we go back to the history we will come to know that his persistent effort to achieve these two targets. In the days gone by when man started saving money he felt himself unsecured. First he buried his savings underground. But this practice did not last long for its shortcomings. Then, he resorted to deposit his savings with the strong and robust persons for safekeeping who hired armed guards on wages. These persons charged fee from depositors.

This practice turned into widely accepted business, which gave rise to the idea to lend the deposited money. The new scheme proved a blessing in disguise because it, then, attracted even more business and brought the trustee new dimensions of profit, and thus modern banking started.

The bank of Venice, established in 1157, is supposed to be the most ancient bank. The bank of England was established on 15th April, 1694. It was a turning point in the history of English Banking which led to the growth of modern banking.

Today the banks are the most important financial institutions which play a vital role throughout the world's economic system.

Welcome

Welcome to my blog. I'm a student of commerce since almost three years. Commerce has a wide range and an interesting subject. When I was thinking about writing on blog, I decided to write only about my subject, Commerce. So, that's why this is a Commerce House. You'll read here many thing but just about commerce. I hope that this will be useful for all students and those guys who are interested in it.

regards,