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.

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.

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.