(a) Distinguish between commercial… | Commerce

Question 1 Report

(a) Distinguish between commercial banks and merchant banks.

(b) Explain each of the following:
(i) Order cheque
(ii) Bearer cheque
(iii) Certified cheque
(iv) Non-Negotiable cheque.

Answer

(a) Distinction between commercial banks and merchant banks

Commercial banks	Merchant banks
Deal mainly with the general public and small customers.	Deal mainly with large firms, companies and corporate customers.
Accept deposits and operate current, savings and fixed accounts.	Accept mainly large deposits for fixed and short periods; do not usually operate ordinary savings accounts.
Grant short-term loans and overdrafts.	Grant medium- and long-term finance and arrange large loans.
Have many branches spread across the country.	Have few branches, usually in commercial centres.
Provide services such as cheques, standing orders and payment of utility bills.	Provide specialised services such as acceptance of bills, equipment leasing, issuing of shares and financial advice.

(b) Explanation of the types of cheque

(i) Order cheque: A cheque made payable to a named person 'or order'. It can only be cashed by the named payee, or transferred to another person by endorsement (signing on the back).
(ii) Bearer cheque: A cheque payable to 'bearer', that is, to whoever presents it at the bank. It passes from one person to another by mere delivery, without endorsement, and is therefore risky if lost.
(iii) Certified cheque: A cheque that the drawer's bank has confirmed and marked as good, guaranteeing that funds are available to meet it. It assures the payee that the cheque will not be dishonoured.
(iv) Non-negotiable cheque: A crossed cheque marked 'not negotiable'. It can still be transferred, but the transferee gets no better title than the person who gave it; if the cheque was stolen, the holder cannot claim ownership. It reduces the risk of loss through theft.

Answer Details

(a) Distinction between commercial banks and merchant banks

Commercial banks	Merchant banks
Deal mainly with the general public and small customers.	Deal mainly with large firms, companies and corporate customers.
Accept deposits and operate current, savings and fixed accounts.	Accept mainly large deposits for fixed and short periods; do not usually operate ordinary savings accounts.
Grant short-term loans and overdrafts.	Grant medium- and long-term finance and arrange large loans.
Have many branches spread across the country.	Have few branches, usually in commercial centres.
Provide services such as cheques, standing orders and payment of utility bills.	Provide specialised services such as acceptance of bills, equipment leasing, issuing of shares and financial advice.

(b) Explanation of the types of cheque

(i) Order cheque: A cheque made payable to a named person 'or order'. It can only be cashed by the named payee, or transferred to another person by endorsement (signing on the back).
(ii) Bearer cheque: A cheque payable to 'bearer', that is, to whoever presents it at the bank. It passes from one person to another by mere delivery, without endorsement, and is therefore risky if lost.
(iii) Certified cheque: A cheque that the drawer's bank has confirmed and marked as good, guaranteeing that funds are available to meet it. It assures the payee that the cheque will not be dishonoured.
(iv) Non-negotiable cheque: A crossed cheque marked 'not negotiable'. It can still be transferred, but the transferee gets no better title than the person who gave it; if the cheque was stolen, the holder cannot claim ownership. It reduces the risk of loss through theft.

(a) Distinguish between commercial banks and merchant banks. (b) Explain each of the following: (i) Order cheque (ii) Bearer cheque (iii) Certified cheque (...