Banking

Banks are financial institutions that accept deposits and make loans. They act as functional institutions that bring savers and borrowers together.

Every country needs a central financial institution with a wide range of powers to look after its monetary system. These financial institutions are called Central Banks. They supervise and regulate the banking system of the country in which they operate.

Central banks perform certain tasks for commercial and specialized banks, just as these banks perform services for their own clients.

Commercial banks are different in different countries.

In the USA commercial banks are classified into national or federal and state.

The English commercial banks have branches in all the major towns and have a similar structure

The owners of all the commercial banks are their shareholders.

Banks fulfil two distinct needs in the country. On the one hand, they provide a safe place for people to deposit their money. On the other hand, they lend excess funds to individuals and businesses temporarily in case of need.

Banks make their profits from all their activity.

Economic systems

All societies have an economic system or organized way of providing tor the wants and needs of their people.

There are three major kinds of economic system. They may be classified as traditional, command and market.

In a society with a traditional economy nearly ail economic activity is the result of ritual and custom. The main advantage of a traditional economy is that everyone has a role in it. This helps to keep economic life stable and community life continuous.

An economy where a central authority draws up a plan that determines what will be produced, how it will be produced and who will get it is called a command economy. The major advantage of a command economy is that it can change direction drastically in a relatively short time.

In a market economy the basic economic questions are answered without the necessity of a central government plan and directives. The questions what, how and for whom to produce are made by individuals and firms acting in their own best interests.

A market economy has several advantage that traditional and command economies do no have. A market economy is flexible. It can adjust to change over time. The second is the freedom that exists for everyone involved.

There are no purely command and no purely market economies. All economies are mixed.

Forms of business organizations

A business may be privately organised in three different forms, These forms are the sole proprietorship, the partnership and the corporation. Most business firms are created and exist to make a profit.

A sole proprietorship is a form of business organization owned and operated by one person. The reason for their popularity is that they are the easiest and least costly to organize.

The greatest disadvantage of a sole proprietorship is unlimited liability that each proprietor faces.

A partnership is a form of business organization that is owned and run by two or more persons. Partnersnips are easy to form, relatively small to control and often gel tax benefits from the government.

A cooperation is a form of business organization created under a government charter. A corporation may issue and self stock certificates. A person who owns a stock certificate is called a stockholder. Shareholders are the owners of a corporation and their shares of ownership are represented by stock sertificates.

A corporation is managed by the Board of Directors.

It is difficult and expensive to organize a corporation.