(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.
| commercial banks | merchant banks |
| (i) Deal with both small and big customers (ii) Give out short term loans to individuals and businesses (iii) can act as agent to issuing houses (iv) partake in all kinds of banking activities |
Deal with large corporate bodies Give out long term loans to large corporation can act as issuing houses perform specialised banking activities |
b)(i) Order cheque; is a cheque made payable to a person named on it or his order. What this means is that an order Cheque is only paid to the person whose name appears on it or another person to whom he will authorise the bank to pay the money to by endorsing the cheque to be paid to the person. By endorsing an order cheque, it becomes a bearer cheque, which anybody can present for payment.
(ii) Bearer cheque; is a cheque that is made payable to whoever presents it and that is the meaning of word bearer. It does not mean that no name is written on the cheque. This means that anybody can present the cheque in spite of the name written on it and the bank is obliged to honour it. It therefore, means that a bearer cheque is not safe.
(iii) Certified cheque; cheque drawn or ratified by a bank on behalf of a customer. known Banks do this in order to restore confidence or genuiness on a cheque. If a creditor doubts the authencity of a debtor's cheque, the creditor may request the debtor to give him a certified cheque.
(iv) Non-Negotiable cheque; is a cheque carrying a warning to whoever that is accepting it that he has no better right to it than the transferee. The words do not imply that the cheque cannot be endorsed to a third party.
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