BANKING DEFINITIONS
SESSION: 2024-25
Chapter One: Definitions- Origin and History of Banking
Unit # ____________
Topic: Banking
Definition # 1: “Banking means accepting for the purpose of lending or
reinvestment of deposits of money from public, payable on demand or otherwise
and withdrawable through cheque, , drafts or otherwise”.
Banking Companies Ordinance 1962
Definition # 2: “ A banker is one who in the ordinary course of business honours
cheques drawn upon him by persons for whom he receives money on current
account”.
Dr. Herbert L. Hart
Based on the background knowledge about the earlier banking practices in Europe,
imagine and list down the earlier banking practices in South Asia.
Chapter Two: Banking System and Kinds
Cooperative Bank: “ A Cooperative bank is a cooperative society that is made
to encourage thrift, self-help and cooperation among agriculturists, artisans
and persons of limited means”.
Agricultural Bank: “A bank that is affording credit facilities to agriculturists
and persons engaged in cotton industries in rural areas, and for matters
connected therewith”.
Practice and Law of Banking in
Pakistan
Asrar H. Siddiqui
Chapter Three: Commercial Banks
Definition # 1: “A banker is one who in the ordinary course of business
honours cheques drawn upon him by persons whom he receives money in
current account”. Source: Dr. Hart
Scheduled Bank: “A Scheduled Bank is a bank having paid-up capital and reserves
of Rs. 500 million or more and declared to be a Scheduled Bank under Section 37
(2) (a) of the State Bank of Pakistan Act, 1956”. [Link] › stats › 7.
Scheduled and co-operative [Link]
Ch. 4- Bank Account
Definition: A bank account is a financial arrangement between an
individual or a business and a banking institution. This relationship
facilitates the secure storage of money, easy access to funds, and
the facilitation of [Link] is a primary tool for
managing personal finance, providing a mechanism for receiving
income, saving for the future, and making payments for goods and
services.
Source: [Link]
Definition of Current Account
It is a bank account from which a person can take money by writing
checks, a checking account.
[Link]
Chapter Six- Cheque
Definition # 1: Cheque is a Bill of Exchange, drawn upon a specified bank and
NOT expressed to be payable otherwise than on cdemand”.
Source: Section 6, Negotiable Instrument Act 1881
Definition # 2: “ An unconditional order in writing drawn on a specified
banker, signed by the drawer, requiring the banker to pay on demand a sum
certain in money to or to the order of a specified person or to the bearer and
which does not order any act to be done in addition to the payment of money”.
Source:Law of Banking by Dr. Hart,pg.327
Chapter Six: CROSSING of A CHEQUE
Crossing:Under Section 123 of the Negotiable Instrument Act, General
Crossing has been defined as:
“Where a cheque bears across its face an addition of the words’ and company or
any abbreviation thereof between two parallel transverse lines simly, either with or
without the words ‘not negotiable’, that addition shall be deemed to be a crossing,
and the cheque shall be deemed to be crossed generally”.
General Crossing: same as above
Special Crossing: “Where a cheque bears across its face an addition of the name
of the banker, either with or without the words ‘Not Negotiable’ that addition shall
be deemed a special crossing, and the cheque shall be deemed crossed specially;
and to be crossed to that banker”.
Chapter Seven – Bill of Exchange
Definition # 1:
“ An instrument in writing containing an unconditional order, signed by the maker,
directing a certain person to pay on demand or at a fixed or determinable future
time, a certain sum of money only to, or to the order of a certain person or to the
bearer of the instrument”.
Source: Section 5, Negotiable Instrument Act 1881
Noting and Protesting:
In addition to the Notice dishonour of bill must be registered with a place which can provide a legal
proof about this case [Link] could be done througe Notary Public Office.
Notary Public Office is a place established by Government in almost all the regional Ares of the city and
officers working over there are commissioned by state and are authorized to administer oaths, to take
acknowledgementsand to protest negotiable instrument for non-payment or non-acceptance .
Definition: “Noting is a minute on a dishonoured bill or on a slip of paper attached to the bill to secure
official evidence that it has been dishonoured”.
This noting process provides good protection to the holder and the drawer against the drawee in case
the matter is brought to the [Link] legal advantage of an instrument sworn to before a notary public
are admissibility into court as prima facie evidence of admissibility as a court record, liable on account of
the dishonor.
Noting must specify:
Date of dishonour
Reason for dishonour, it should specify about the reason being deliberate or indeliberate.
The bill is usually re-presented before the drawee so to convince him to make the payment and avoid all
the associated complications and in case of refusal bill is finally noted.
Q16. What is a ‘Protest’, Discuss.
Protest: Protest is a legal measure for the purpose of holding the endorsers. It is legal evidence of
presentation and refusal to pay by the drawee so it is better to procure this document.
Chapter Eight- Promissory Note
Definition: Definition of a promissory note:
“promissory note is an instrument in writing, containing an unconditional
undertaking signed by the maker, to pay on demand or at a fixed or determinable
future time, a certain sum of money only to or to the order of a certain person or to
the bearer of the instrument.”
SOURCE: SECTION 4, NEGOTIABLE INSTRUMENT ACT.
Chapter Seven- Endorsement
Definition # 1: “ When the banker or holder of a negotiable instrument signs the
same, otherwise than as such maker, for the purpose of negotiation, on the back or
face thereof or on a slip of paper annexed thereto, he is said to indorse the same,
and is called the ‘indorser’”.
Source: Section 15, Negotiable Instrument Act 1881
Definition # 2: “ Endorsement refers to writing of a person’s name on the back or
face of a negotiable instrument or on a piece of paper attached to it for the purpose
of transferring the property(ownership) in the instrument”.
Source: Modern Banking by M. Amin Khalid, pg.74
Chapter Nine- Credit Card
Chapter Nine: Credit Card
Definition:
A small plastic card issued by a bank, Saving and Loan Association etc. allowing
the holder to purchase goods and services on credit
Source: Chapter 12, Emerging Tools and Strategies for Financial Management
Chapter 10- Letter of Credit
Letter of Credit
Definition. A Letter of Credit (LOC) is correspondence issued by a bank
guaranteeing payment for goods and services purchased by the one requesting the
letter. An Irrevocable Letter of Credit, or ILOC, cannot be canceled or modified in
any way without explicit consent by the affected parties involved.
Source: TOP DOTT
Definition # 2: saved on desktop
Chapter 11- Bank Advances and Funds
Definition of Government Security:
1. A government security is a bond or other type of debt obligation that is issued by a
government with a promise of repayment upon the security's maturity date. Government
securities are usually considered low-risk investments because they are backed by the taxing
power of a government.
2. Government securities are debt instruments of a sovereign government. They sell these
products to finance day-to-day governmental operations.
3. Any financial investment security that is issued by federal government, also known as treasury
securities or ‘treasuries’. They are usually considered as the safest form of investment as they are
backed by the “full faith and credit” of the government”.
Source:[Link]
Chapter 12- Central Bank
A. DEFINITION # 01
“A Bankers’ Bank, a bank which holds the main body of reserves of a country and
which is the ultimate source of credit.
These banks are usually by the following functions:
1- Keeping the reserves of all or majority of Commercial banks.
2- Rediscounting and loaning against high grade commercial papers.
3- Performing fiscal services for the government.
4- Monopolizing the bank note issue.
5- Controlling the gold reserves or other monetary reserves of a country.
6- Assisting in check collection”.
(Dictionary of Banking and Finance)
DEFINITION # 02
“A bank that is charged with regulating the monetary and credit systems and
fosters country’s growth in the best national interest with a view to securing
monetary stability and fuller utilization of the country’s productive resources”.
The State Bank of Pakistan Act
1956
The principal banking institution of a country operating under some degree of
estate control and entrusted with some degree of special responsibility of
maintaining economic equilibrium and stability in the prices and in the overall
interest of the country.
Central Bank
Clearing House:
A Inter bank indebtedness are settled through a central organization called
“Clearing House.”
“A voluntary assosiationof banks located in the same city, joined together to
facilitate the daily exchange of checks,drafts and notes among its members instead
f separate exchange of “local items” made individually by each bank with the
others”.
Source: Dictionary of banking & finance)
Chapter 13- CREDIT CONTROL
Definition of Bank Rate:
“The Bank shall make public from time to time the standard rate at which it is
prepared to buy or rediscount bill of echange or other commercial papers eligible
for purchase under this act”.
Source: Section 22,State Bank of Pakistan Act 1956
Definition of Open Market Operation:
“Open Market Operation is another conventional instrument of credit control
through which the central bank of a country purchases and sells the securities in
the open market”.
Source: Law and Practice of baking in Pakistan, Asrar H. Siddiqui
Selective credit Control:
“Regulation of credit for specific purposes or sectors of economic activity is
resorted to, and is called ‘selective or qualitative credit control’ that aims to
encourage credit only to the essential or most desirable sectors and to discourage
the unessential or less desirable sectors of economic activity”.
Source: Law and Practice of baking in Pakistan, Asrar H. Siddiqui, pg.231
Chapter 15: BALANCE OF TRADE
Balance of trade
Definition:-
“The difference between a country's imports and its exports. Balance of trade is the
largest component of a country's balance of payments. Debit items include imports,
foreign aid, investments abroad. Credit items include exports,. A country has a
trade deficit if it imports more than it exports; the opposite scenario is a trade
surplus
Balance of Payment
According to Kindle Berger, "The balance of payments of a country is
a systematic record of all economic transactions between the residents
of the reporting country and residents of foreign countries during a
given period of time". It is a double entry system of record of
all economic transactions.
“A statement that summarizes an economy’s transactions with the rest of the world
for a specified time period. The balance of payments, also known as balance of
international payments, encompasses all transactions between a country’s residents
and its nonresidents involving goods, services and income; financial claims on and
liabilities to the rest of the world; and transfers such as gifts. The balance of
payments classifies these transactions in two accounts – the current account and
the capital account. The current account includes transactions in goods, services,
investment income and current transfers, while the capital account mainly includes
transactions in financial instruments.”
Chapter 16: Foreign Exchange.
A. Foreign Exchange is termed as “The mechanism by which commercial
transactions, investments, and other financial deals between countries are settled”.
Although the term foreign exchange is usually defined as comprehending all those
transactions that are concerned with the purchase and sale of the money of foreign
countries, it is more accurately described as the transferring by the individuals or
the corporations in one country of debits or credits through their books by
obtaining debits or credits on the books of the banks in other countries that are
correspondents or branches of the banks through which transaction is arranged.
Dictionary of Banking & Finance
Exchange Rate: The price at which one country’s currency can be exchanged by
the other. The value of the exchange rate, like any other price, is determined by the
interaction of supply and demand in the foreign exchange market.
Changes in the economic activity of any one country will affect that country’s
exchange rate with all other currencies.
Exchange rate of a country is simply the reciprocal of the other.
(Dictionary of Banking)
Chapter 20- E-BANKING
Definition # 1:
“Electronic banking, or e-banking, refers to the use of electronic technologies to
conduct banking transactions without visiting a physical bank location. This
includes services like online banking, phone banking, and PC banking where
customers can check balances, pay bills, transfer funds and more through either a
personal computer or mobile device connected to the internet”.
Source:[Link] Non-
Commercial (BY-NC)
“ Electronic banking can be defined as the use of electronic delivery channels for
banking products and services, and is a subset of electronic finance”.
Source: A Schaechter
Q.2. Describe the banking scenario in the Indian sub-continent before the
arrival of Muslims.
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Q.2 Discuss the Muslims’ contributions towards the Indian economy and
banking in the Indian
sub- continent.
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WORK SHEET- Currency Issuance
Unit # ____________
Topic: Characteristics of a Good Currency System
List the characteristics of a Good Currency System:
1- _____________________________
2- _____________________________
3-_____________________________
4-_____________________________
Briefly Explain Each:
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WORK SHEET- Currency Issuance
Name:___________________Unit # ____________
Topic: Methods of currency issuance:
Name & explain the Method with the help of the following Diagram:
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Total Currency Issuance
Analyze the Method
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WORK SHEET- Currency Issuance
Unit # ____________
Topic: Minimum Reserve Method:
Complete the following statements:
1-Minimum Reserve Method provide _______ security and
100%_________________
2 Justify your answer in the above question
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WORK SHEET- Currency Issuance
Unit # ____________
Topic: Monopoly of Currency Issuance
Question: Discuss why monopoly of currency issuance is given to Central
Bank. You may go with the list of reasons with brief explanation.
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WORK SHEET- Origin and History of Banking
Unit # ____________
Topic: Origin and History of Banking
Achievement
Complete the following statements:
1-East India Company was made in the year _______
2- The arrival of Britishers brought
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__________________ and developed the banking sector of the Indian subcontinent
through
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3-First Bank in the Indian sub-continent was_____________________________
4- Some of the banks formed that time were
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5- Reserve Bank of India was formed as the ________________ bank and
performed the functions
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WORK SHEET- Origin and History of Banking
Unit # ____________
Topic: Banking in Pakistan
Complete the following statements:
1-State Bank of Pakistan was made in the year _______
2- After the commencement of planned economic growth, banking
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3-First Bank to deal with the industrial growth
was_____________________________
4- Some of the banks formed in 60s & 70s were
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5- Nationalization was done in ________________ Islamization in
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6-Privitazation of banks gave a boost
to______________________________________________
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WORK SHEET- Origin and History of Banking
Unit # ____________
Topic: Modern Banking
Q. 1 Describe only in brief the contribution of the three founders towards the
development of ‘Modern Banking’.
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WORK SHEET- Credit Control
Unit # ____________
Topic: Credit Control (CC)
Complete the working diagram of CC in Inflation
1- Central bank will __________ the Bank Rate in Inflation
2- ________________________________________________
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WORK SHEET- Credit Control
Unit # ____________
Topic: Credit Control (CC)
Complete the working diagram of CC in Inflation
1- Central bank will __________ ______________________in Inflation
2- ________________________________________________
3-____________________________________________________
4-____________________________________________________
5- _____________________________________________________
WORK SHEET- Credit Control
Unit # ____________
Topic: Credit Control (CC)
Analyze the following statements:
1. Bank Rate is the rate charged by central bank while giving loans to
commercial banks
2. Bank Rate & GPL have direct relationship
3. An increase in Bank Rate leads to an increase in the ‘Market Rate of
Interest’
4. Central Bank is the sole authority to decide the desirable Bank Rate
5. In Pakistan Bank Rate Policy is laid by State Bank of Pakistan
WORK SHEET- Credit Control
Unit # ____________
Topic: Credit Control (CC), Open Market Operation (OMO)
Complete the following statements:
1-OMO is
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2-Government Security
means____________________________________________________
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3- When central bank starts selling government securities that leads
to___________________
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4- As per the SBP policy, all commercial banks are compulsorily required to
keep____________
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5-Selling securities means ________________ of money while purchase of
securities will lead to
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WORK SHEET- Credit Control
Unit # ____________
Topic: Credit Control (CC)
Show working of BRP in graphs (two graphs are required)
WORK SHEET- Credit Control
Unit # ____________
Topic: Credit Control (CC)
Show working of OMO in graphs (two graphs are required)
WORK SHEET- Bankers’ Bank
Unit # ____________
Topic: Introduction of Bankers’ Bank
1- Central bank is called Bankers’ Bank because______________________
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2- Draw functional tree of Bankers’ Bank
WORK SHEET- Bankers’ Bank
Unit # ____________
Q.1 List all and Briefly describe all functions of bankers’ bank.
WORK SHEET- Bankers’ Bank
Unit # ____________
Topic: Custodian of Cash Reserves, Bankers’ Bank.
Q.1 State in one line, the Cash Reserve Requirement by State Bank in Pakistan.
Q.2 Describe the significance of this method in controlling credit in short term.
WORK SHEET- Bankers’ Bank
Unit # ____________
Topic: Clearing House, Bankers’ Bank.
Q.1 Give brief introduction of clearing house.
Q.2 Show working of clearing house.
WORK SHEET- Bankers’ Bank
Unit # ____________
Topic: Lender of the Last Resort, Bankers’ Bank.
State the need, why central bank acts as Lender of the last resort?
Discuss different forms of lending while performing this function.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Introduction / Definition.
Give introduction / one definition with source.
List the objective of a commercial bank.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Functions.
Draw functional chart/Tree.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Primary Functions – Depositing.
List the Primary function
Discuss Depositing function in brief.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Depositing.
Q.1 List different kinds of deposits.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Depositing.
Draw a comparative Table of different deposits showing features of the respective
deposits.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Lending.
Define and discuss lending function.
List different forms of lending.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Lending.
Compare different forms in terms of nature and scope.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Lending.
Draw comparative Table of different forms of lending.
WORK SHEET- Commercial Bank
Unit # ____________
Topic: Credit Creation.
Discuss briefly this function.
Show how credit is created by commercial banks.