AMERICAN COLLEGE

1

• AMERICAN COLLEGE
• S K O P J E
•   PRINCIPLES OF BANKING
• Chapter 1
•  
• Instructror Tome Nenovski, Ph. D.  

2
1. INTRODUCTION TO BANKING

• 1.1. WHAT IS A BANK?
• - The most important financial institution and
  one of the most important social institutions
• - The oldest financial intermediary
• - Banque - Banca Bench (Desk, Work-Bench)
  for changing money (interference was the only
  bank activity)
• - Trapeza (desk where money had been changed)

3
1. INTRODUCTION TO BANKING

• 1.1. WHAT IS A BANK?
• - Credit and deposit activities started becoming
  more important bank activities
• - Bank activities evolution resulted in
  different definitions for banks  
• - Building where different money activities take
  place
• - Generally, bank is a joint venture company
  with all rights and responsibilities that come
  out from such organizations

4

• 1.1. WHAT IS A BANK?
• - Definition Bank is a legal entity whose
  basic activity is collecting deposits and their
  partially or whole usage for making placements in
  credits and other investments for making profit
• - A narrower and more common definition of a
  bank is a financial intermediary that accepts,
  transfers and, most important, creates deposits
• - Financial store Bank offers the broadest
  quantity of financial services (credits, savings,
  payments etc.)

5

• 1. 2. Bank appearance and development
• 1.2.1. Money appearance and development
• a) What is money?
• - Means for changing goods and services
• - Generally accepted paying means for
• delivering goods or for paying debt.

6

• 1. 2. Bank appearance and development
• 1.2.1. Money appearance and development
• b) Barter (traffic by exchange)
• c) Metals as money (means for changing goods)
• d) Gold as money (means for changing goods)

7

• 1. 2. Bank appearance and development
• 1.2.1. Money appearance and development
• e) Paper money (banknotes) - money certificates
• f) Bank appearance as money certificates
  issuers
• g) Account money money transfer from debtor
  account to creditor account
• h) Electronic money

8

• 1.3. Bank roles and tasks
• - Most important part of the financial market in
  each country
• - Bridge between sectors with surplus funds and
  sectors with lack of funds
• - Basic bank task collecting (mobilizing) free
  funds from the economy and allocating them to the
  interested economy subjects through credits

9

• 1.3. Bank roles and tasks/2
• - Banks as money creators (credit
  multiplication)
• - Direct influence to the economy growth
• - Extending credits to credit worthy clients
• - Minimizing risks for deposit holders
• - Securing liquidity funds for bank clients.

10

• 1.4. Basic Bank Functions
• - Generally, there are 5 functions that are
  compatible with bank existing
• a) Deposit function
• b) Credit function
• c) Payment function
• d) Financial and advisory function
• e) Foreign trade function.

11

• 1.4. Bank functions
• a) Deposit function
• - Accumulation of sight deposits, term deposits
  and savings
• - Motives for keeping deposits at bank paying
  current transactions, cumulating funds for future
  investments, basis for getting bank credit,
  interest etc.
• - Basis for extending credits and making profit.

12

• 1.4. Bank functions
• b) Credit function
• - Most important bank function
• - Extending different types of credit to bank
  clients
• - The most risky bank function
• - The importance of interest.

13

• 1.4. Bank functions
• c) Payment function
• - Money transfer between clients accounts
• - Usage of non cash money instruments
• - The need of improving not cash money
  instruments (credit cards, debit cards, internet
  banking, intranet banking, making electronic
  payments etc.
• - The importance of payment provisions and costs
  for bank profitability.

14

• 1.4. Bank functions
• d) Financial and advisory function
• - Giving different financial services and
  advises to bank clients
• 1) guarantees factoring leasing
• 2) brokerage, foreign exchange activities,
  securities matters
• 3) information, market research, accounting
  matters, credit project analysis, consulting,
  depot etc.

15

• 1.4. Bank functions
• e) Foreign-trade function
• 1) Foreign exchange payments
• 2) Guarantees
• 3) Export credits
• 4) Export promoting.

16

• KEY WORDS/TERMS
• Bank
• Credit
• Deposit
• Money
• Barter (Traffic by echange)
• Paper money
• Money cetrificates
• Account money

17

• KEY WORDS/TERMS
• Electronic money
• Deposit function
• Credit function
• Payment function
• Financial and advisory function
• Foreign trade function

18

• CHECKING QUESTIONS
• 1. How can we define a bank?
• 2. What are the main bank roles and tasks?
• 3. What are the basic bank functions?
• 4. Give short explanation of bank deposit
  function.
• 5. Give short explanation of bank credit
  function.
• 6. Give short explanation of bank payment
  function.

19

• CHECKING QUESTIONS
• 7. Give short explanation of bank financial and
  advisory function.
• 8. Give short explanation of bank foreign-trade
  function.