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Question
Attempt the following.
How does banking and insurance help trading?
Solution
Commerce includes trade and auxiliaries to trade. Trade means buying and selling of goods and services. But buying and selling are not possible unless it is supported by the auxiliaries to trade. Thus auxiliaries to trade are the services which help trade. Banking and insurance are two important auxiliaries to trade.
- Banking: Banking services help traders in many ways. Branches of banks are spread over wider areas. Traders can open an account in the bank and take advantage of various banking services. Banks offer loans, overdrafts, transfer of money, letter of credit, foreign exchange facilities to the traders.
- Insurance: There are various kinds of risks in the business. A businessman can transfer some risks on the insurance company. Goods can be destroyed by fire, theft or damage in transportation. The businessman can transfer these risks to the insurance company. He has to pay a premium to the insurance company and make a contract with the Insurance company. In case of loss, the insurance company pays compensation to the trader.
- Thus, the risks cannot be avoided completely but can be minimized by taking an insurance policy.
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