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Difficulty: EasyCommercial Banks: Functions, Services, and Credit Creation

Match each commercial banking service listed on the left with its correct functional description on the right.

  • Overdraft facilityA credit arrangement allowing a current account holder to draw funds in excess of their actual balance up to an agreed limit.
  • Standing orderAn instruction by an account holder authorizing the bank to pay a fixed amount regularly on specified dates.
  • Bank draftA cheque drawn by a bank on its own funds, guaranteeing payment to a named payee.
  • Night safe facilityA secure service that enables business owners to deposit cash and valuables into the bank after official working hours.

Answer

Overdraft facility pairs with the credit arrangement allowing current account holders to draw beyond their balance up to a set limit. Standing order pairs with an instruction to pay a fixed amount regularly on specified dates. Bank draft pairs with a payment instrument drawn by a bank on itself guaranteeing payment. Night safe facility pairs with a secure deposit service for lodging funds after normal operating hours.
Each banking service fulfills a specific commercial need: an overdraft facility provides flexible short-term borrowing for current account holders; a standing order automates regular fixed-amount disbursements; a bank draft acts as a risk-free payment instrument drawn on the bank; and a night safe facility provides safe cash lodgement outside normal operating hours.

Step-by-Step Solution

1
Identify short-term credit facilities extended to current account holders.
Overdraft facility allows temporary borrowing above available account funds up to an agreed ceiling.
Commercial banks offer overdrafts exclusively to current account holders needing immediate short-term credit.
2
Distinguish between automated customer payment instructions.
A standing order specifies a fixed amount paid regularly on fixed calendar dates.
Standing orders are standing customer mandates for predictable recurring payments.
3
Identify guaranteed bank payment instruments.
A bank draft is a bank's own cheque drawn against its own funds for secure merchant settlement.
Bank drafts eliminate dishonour risk because the customer pays the bank upfront before issuance.
4
Recognize after-hours business deposit services.
Night safe facility provides secure cash deposit options past operating hours.
Traders generating late evening sales require safe cash lodgement before the bank opens next day.

Key Concept

Commercial Bank Services and Payment Facilities
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Topics

Commercial Banks: Functions, Services, and Credit Creation

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