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Question
Give reason or explain the following statement:
Commercial banks provide agency functions to earn profits.
Solution
Commercial banks provide agency functions to earn profits.
Explanation: Commercial banks provide several agency functions to their customers besides the major functions of acceptance of deposits and granting of loans. These functions may include:
1) Easy and cheap flow of funds from one place to another via mail transfers, demand drafts etc.
2) Collection and payment of funds on behalf of their customers through bills, cheques etc.
3) Purchase and sale of securities and foreign exchange.
4) Providing the facility of underwriting the sale of new shares.
These services are provided by the bank in return for some fee. Hence, the bank earns profits through these services.
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