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Banks Existence

05 May 2017Essay Samples

The Banks

Banks are the largest lending institutions through out the globe; the basic purpose of banks is to secure money of the people/organizations and to lend the money to the people/organizations as a creditor/lender. When they start returning money back to the bank either at once or in portions take interest on it. This interest is the prime source of the banks profit; interest is also known as “Usury”.

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The Money

The money is coins and banknotes as the medium of exchange, which is used when purchasing some thing or giving the value of something, different countries have different currencies/banknote/coins.

Following are the few features and functions related to money:

• Medium of Exchange
• Mode of payment
• Unit of Account
• Store of Value
• Fastest Liquid Asset (In terms of accounts)
• Economy depends upon it
• Prices are allocated on behalf of it

According to Glyn Davies writer of famous “A History of Money” is that “Money is anything that is widely used for making payments and accounting for debts and credits”.

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Other Modes of Payments/Exchange

The other valuable mode of transactions are cheques and credit cards, cheques are written order to the bank to pay certain amount from the drawer’s account. In credit credits the bank from the credit card holder’s account deducts the payment, it is also known as smart money or plastic money. It is secure because you don’t have to bring all the currency notes with your self, so that the chance of robbery is minimize.

The Interest/Usury

It is very important to know about interest while studying banks, this is the prime source of profit for banks. The interest is collected from the individuals/organizations over the credited money. Interest is of two types, which is given below:

Simple Interest

Simple is interest is that interest is paid (earned) on only the original amount, or principal, borrowed (lent).

Compound Interest

The notion of compound interest is crucial to understanding the mathematics of finance. The term itself merely implies that interest paid (earned) on a loan (an investment) is periodically added to the principal. As a result, interest is earned on interest as well as the initial principal amount. It is the interest-on-interest, or compounding, effect that accounts for the dramatic differences between simple and compound interest. The compound interest can be used to solve a wide variety of problems in finance.

The History of Banks

The history of banks is old, but it is not exactly in that form which today we have, as we developed the way of banking and other related features are also changed. Initially people store money in the royal palaces and temples, at that time there were no concept of money they secure their grains and other commodities into it, the reason behind this they feel that these places are very secure and the chance of robbery or theft is very less as compare to secure in there own houses.


Growing organization often requires more money; the owners often sell shares of the business to other individuals or to other organizations. These investors are known as shareholders. Large cooperations may sell shares to thousands of shareholders, but smaller businesses typically sell shares to only a few.
Shareholders who are dissatisfied with the management performance may sell their shares and invest in another company. This action is taken by other dissatisfied shareholders, will put downward pressure on market price per share. Thus, management must focus on creating value of the shareholders

Shareholder Wealth

The money invested by the shareholders for the sake of profit earned from the company can be known as shareholders wealth. Its growth depends upon the dividends distributed by the company, capital growth that is, the increase in the market value of a company's shares over the total cost of those shares, and can be by new issuance of shares, which may be made by a company when it requires further funds. Such new shares are usually offered at a discount to existing shareholders.

Shareholders, hoping that the agents (managers) will act in the shareholders best interests, delegate decision-making authority to them. The key role in maximizing shareholders wealth is played by managers (working as agents of the owners). While maximizing the shareholders wealth the other major responsibility over management is that, they should have to protect the consumer, paying fair wages to the employees, maintaining fair hiring practices and safe working conditions, supporting education, and becoming involved in environmental issues such as clean air and water.

Banking Today

Today banks are playing very essential role in our country economy as well as in global economy; they are giving loans to the organization and individuals, trying to make humans life easier and developed. Without bank we cannot even think to live, for example how do you feel if some one says that I have one million or ten million dollar save in my cupboard locker, obviously you can laugh over the person wisdom?
Now banks are providing greater facilities and constantly improving their standards day by day, Stronger security, locker facilities (where you can save and secure other stuff besides money), credit card, Auto Teller Machine (ATM), easy loan facilities (with low-markup), phone banking, mobile banking, online banking, excellent customer services, customer 24/7 days access to the account are the great features of the banking, and these features are the key reasons for banks to exist in our environment.

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