In the business world, a financial institution known as a bank plays an important role. This financial institution has many economic functions. It is responsible for the issuance and creation of money. It also acts as a collecting and paying agent to customers. When one decides to put up a business, it is through the bank one gets some of his funds to be able to run his business. Most financial transactions of a business involve transactions with the bank, like making deposits, investing and making payments. Businesses work back to back with financial institutions.
The bank accepts deposits which are money clients put in for safe keeping. These deposits are in return offered to creditors as loans. The money that is deposited earns through the loans others get. The bank acts as a mediator between the depositor and the borrower. This flow of the money is the very essence of banking.
Banking is a system where money put in is invested or offered to others as loan. The banking system is a network of banks that provide financial services that includes accepting deposits, providing loans and credit assistance, transmission of money and other investment services. The network of banks includes commercial, savings, and specialized banks and a central bank. It is through these business transactions that the bank profits. With their earnings and profit they give interest to their depositors and investors and impose interest on borrowers and creditors. The banking system is regulated by government laws putting restrictions on financial activities. These restrictions are for the protection of the depositors and investors.