what is clearing house function in banking
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Clearing house function in banking
A clearing house is a financial institution formed to facilitate the exchange (i.e., clearance) of payments, securities, or derivatives transactions. The clearing house stands between two clearing firms (also known as member firms or participants).
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A clearing house is an intermediary between buyers and sellers of financial instruments. It is an agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data.
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The Central bank performs the function of clearing house. The cheques of two banks are cleared through their accounts with central bank. They avoid the transfer of cash. This reduces the requirement of cash reserves of the commercial banks.