Exercises · Q3
Q.Distinguish between the primary functions and the secondary (agency) functions of a commercial bank.
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✓ Free question
The two groups differ in purpose and importance.
| Basis | Primary functions | Secondary (agency) functions |
|---|---|---|
| Nature | Essential — they define a bank | Supplementary services offered in addition |
| Examples | Accepting deposits, advancing loans, creating credit | Collecting cheques, bills, dividends and rent; paying premia, taxes and bills; remitting funds; buying/selling securities; acting as trustee, executor or attorney |
| Whom performed for | The bank's own business of borrowing and lending | On behalf of, and at the request of, the customer |
| Source of earning | Interest spread between lending and deposit rates | Commission, fees and exchange charges |
| If withdrawn | The institution would cease to be a bank | It would remain a bank, offering fewer services |
In short, the primary functions are what make an institution a bank, while the agency functions are valuable but optional services it renders to its customers using the same organisation and expertise.
✓Final answer
Primary functions — accepting deposits, advancing loans and creating credit — are essential and define a bank, earning it the interest spread. Secondary/agency functions — collecting and paying items, remitting funds, acting as trustee — are optional services performed on the customer's behalf for a commission, and their absence would not stop the institution being a bank.
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