money and banking ajahar husai NDIM

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money and banking ajahar husai NDIM

  1. 1. MONEY AND BANKING 10/4/2013MONEY & BANKING 1
  2. 2. AJAHAR 187 AMRITA 219 JAYATI 214 ABHISHEK 182 SUSHEEL 178 HITESH 213 • PRESENTED BY - 10/4/2013MONEY & BANKING 2
  3. 3. CONTENTS • DEFINITION OF MONEY • FUNCTION OF MONEY • KIND OF MONEY • MEASUREMENT OF MONEY • USE OF MONEY • CHARACTERISTICS OF MONEY • KEY TERMS OF BANKING • HISTORY OF BANK • ROLE OF BANK • TYPES OF BANK • BANKING STRUCTURE IN INDIA • IMPORTANTS BANKS IN INDIA • CURRENT ASSETS • CURRENT SHARE HOLDER EQUITY 10/4/2013MONEY & BANKING 3
  4. 4. “Money is whatever is generally accepted in exchange for goods and services — accepted not as an object to be consumed but as an object that represents a temporary abode of purchasing power to be used for buying still other goods and services.” — Milton Friedman (1992) DEFINITION OF MONEY 10/4/2013MONEY & BANKING 4
  5. 5. • anything commonly accepted in exchange for goods/services • many objects throughout history 10/4/2013MONEY & BANKING 5
  6. 6. examples • livestock • metals • cigarettes • grain • shells 10/4/2013MONEY & BANKING 6
  7. 7. money, income, & wealth • money – what is accepted as payment • income – earnings during time period (year) • wealth – accumulated assets at pt. in time 10/4/2013MONEY & BANKING 7
  8. 8. examples • I own $2 million in diamonds. – I am wealthy – I have no money 10/4/2013MONEY & BANKING 8
  9. 9. • I win $25 million in lottery • I quit my job – I am wealthy – I have a lot of money – my income is zero 10/4/2013MONEY & BANKING 9
  10. 10. • software engineer • earnings $100,000/yr – high income – no wealth 10/4/2013MONEY & BANKING 10
  11. 11. How does money serve the needs of our society? • Money provides means for comparing values of goods and services. • Money also serves as a store of value. • Without money, we wouldn’t be able to get the things that we need and want. 10/4/2013MONEY & BANKING 11
  12. 12. • A medium of exchange: an asset used to buy and sell goods and services • A store of value: an asset that allows people to transfer purchasing power from one period to another • A unit of account: a unit of measurement used by people to post prices and keep track of revenues and costs • Money as a standard of deferred payment FUNCTION OF MONEY 10/4/2013MONEY & BANKING 12
  13. 13. Kinds of Money Metallic coins 1. Full bodied money coins 2. Token coins Paper money 1. Representative paper money 2. Convertible paper money 3. Inconvertible paper money 10/4/2013MONEY & BANKING 13
  14. 14. • commodity money: It has its own value as a good -- gold & silver coins 10/4/2013MONEY & BANKING 14
  15. 15. • Fiat money: No value other than fact that it’s accepted in exchange for goods and services 10/4/2013MONEY & BANKING 15
  16. 16. • United States money today is fiat money, which has value because a government has decreed that it is an acceptable means to pay debts. – Citizens have confidence that the money will be accepted. – Because the Federal Reserve controls the supply, it remains in limited supply, which makes it valuable. 10/4/2013MONEY & BANKING 16
  17. 17. U.S. money is fiat money! • NOT backed by gold since 1934 • coins do not contain silver 10/4/2013MONEY & BANKING 17
  18. 18. Debit or Credit cards? • NOT money • payment mechanisms that access money 10/4/2013MONEY & BANKING 18
  19. 19. Measurement of Money R.B.I. presented four measures in 1977. These are defined below in decreasing order of their liquidity. The following measures of money supply are used by the R.B.I. 10/4/2013MONEY & BANKING 19
  20. 20. M1 = currency in circulation + demand deposits + checkable deposits + traveler’s checks $1.4 trillion 10/4/2013MONEY & BANKING 20
  21. 21. M2 = M1 + savings deposits + small time deposits + retail money market deposits $7.3 trillion 10/4/2013MONEY & BANKING 21
  22. 22. M3 = currency with the public + Demand Deposits with banks + time Deposits with banks + other Deposits with the R.B.I. 10/4/2013MONEY & BANKING 22
  23. 23. Components of M1 1% 23% 28% 48% currency traveler's checks demand deposits other checkable 10/4/2013MONEY & BANKING 23
  24. 24. Components of M2 M1 22% small CDs 20%savings 39% money market 19% 10/4/2013MONEY & BANKING 24
  25. 25. Money Growth and Inflation 10/4/2013MONEY & BANKING 25
  26. 26. Three Uses of Money • Money is anything that serves as a: – Medium of exchange – A unit of account – A store of value 10/4/2013MONEY & BANKING 26
  27. 27. The Characteristics of Money • Durability • Portability • Divisibility • Uniformity • Limited supply • Acceptability 10/4/2013MONEY & BANKING 27
  28. 28. Durability and Portability • Durability • Money must be able to withstand the physical wear and tear that comes with being used over and over again. • Portability • Money must be easily carried by people. Paper money and coins work because they are small and light. 10/4/2013MONEY & BANKING 28
  29. 29. Divisibility and Uniformity • Divisibility • Money must be easily divided into smaller denominations. • Uniformity • People must be able to count and measure money accurately. 10/4/2013MONEY & BANKING 29
  30. 30. What Makes Money Valuable? • There are actually several possible sources of money’s value depending on whether it is commodity money, representative money, or fiat money. 10/4/2013MONEY & BANKING 30
  31. 31. BANKING HISTORY 10/4/2013MONEY & BANKING 31
  32. 32. The First Bank of the United States • Federalists won the first debate and in 1791, Congress established the Bank of the United States. Yet, disagreements over the Bank continued. – Antifederalists argued that the Bank was unconstitutional and that it did not benefit ordinary people, only the wealthy. • The Bank functioned until 1811, when its charter ran out. – State banks then took over for the Bank of the United States, which created a great deal of chaos and confusion. 10/4/2013MONEY & BANKING 32
  33. 33. The Second Bank of the United States • To eliminate the chaos, Congress charted the Second Bank of the United States in 1816. • Stability was restored but many were still wary of the Bank’s powers. – In 1832, when Congress tried to renew the Bank’s charter, President Andrew Jackson vetoed the renewal. 10/4/2013MONEY & BANKING 33
  34. 34. DEFINATION • bank: an institution for receiving, keeping, and lending money • national bank: a bank chartered by the federal government • bank run: a widespread panic in which many people try to redeem their paper money at the same time • greenback: a paper currency issued during the Civil War 10/4/2013MONEY & BANKING 34
  35. 35. • gold standard: a monetary system in which paper money and coins had the value of certain amounts of gold • central bank: a bank that can lend to other banks in times of need • member bank: a bank that belongs to the Federal Reserve System • foreclosure: the seizure of property from lenders who are unable to pay back their loans 10/4/2013MONEY & BANKING 35
  36. 36. ROLE OF BANKS  Payment system  Pay deposits on demand  Payment through cheques  Facilitate movement of money  Circulatory system of the economy  Financial services provider  Products of mutual funds &insurance companies  Collection of utility bills 10/4/2013MONEY & BANKING 36
  37. 37. • The banking industry includes: • commercial banks, • savings and loans, and, • credit unions. The Business of Banking • Banks are profit-seeking institutions: • Banks accept deposits and use part of them to extend loans and make investments. Income from these activities is their major source of revenue. 10/4/2013MONEY & BANKING 37
  38. 38. How Banks Create Money by Extending Loans • The lower the percentage of the reserve requirement, the greater the potential expansion in the money supply resulting from the creation of new reserves. • The fractional reserve requirement places a ceiling on potential money creation from new reserves. • The actual deposit multiplier will be less than the potential because: • some persons will hold currency rather than bank deposits, and, • some banks may not use all their excess reserves to extend loans. 10/4/2013MONEY & BANKING 38
  39. 39. TYPES OF BANKS Commercial bank Government bank Private bank Saving bank Cooperative bank Investment bank Specialized bank Retail bank 10/4/2013MONEY & BANKING 39
  40. 40. COMMERCIAL BANK  It helps to mobilize the saving of the community  To make them available to the entrepreneurs  To ensure safety with liquidity  Bank assures all the funds can be drawn back in case of need 10/4/2013MONEY & BANKING 40
  41. 41. Functions of Commercial Banking • Banks provide services and pay interest to attract checking, savings, and time deposits (liabilities). • Most of these deposits are invested and loaned out, providing interest income for the bank. • Banks hold a portion of their assets as reserves (either as cash or deposits with the Fed) to meet their daily obligations toward their depositors. 10/4/2013MONEY & BANKING 41
  42. 42. Commercial bank in india  1950- 645 banks and 4,800 branch office  1969- 14 major commercial bank is nationalized  1993- 2 more bank merged  At present- 19 nationalized bank in india 10/4/2013MONEY & BANKING 42
  43. 43. DRAWBACK OF COMMERCIAL BANK  Growth is less  Regional imbalance  Quality service is poor  No proper experts to improve public sectors banks 10/4/2013MONEY & BANKING 43
  44. 44. Government bank government has a major stake  usually need to emphasize on social objectives than on profitability.  Central bank , RBI Private bank  owned, managed and controlled by private promoters free to operate as per market forces . City union , bank of rajasthan 10/4/2013MONEY & BANKING 44
  45. 45. Financial institution that assists individuals, corporations and governments example - M&T bank Investment banking Governed by the provisions of State Cooperative Societies Act i.e., agricultural financing bank in India. Cooperative bank 10/4/2013MONEY & BANKING 45
  46. 46. CENTRAL BANK  Other banks are largely profit seeking institutions ,the Central bank is not  It acts as the organ of the state  Other bank have largely public dealing ,the central bank’s dealing are with governments, central & state banks & other financial institutions 10/4/2013MONEY & BANKING 46
  47. 47. BANKING STRUCTURE IN INDIA  The state bank of india & its associated banks  Others nationalized banks  Regional rural banks  Private sectors commercial banks  Foreign banks 10/4/2013MONEY & BANKING 47
  48. 48. FUNCTION OF RBI  Issue of currency  Bankers to the government  Bankers bank  Custodian of foreign exchange reserve  Controller of credit  Promotional function  Collection & publication of data 10/4/2013MONEY & BANKING 48
  49. 49. State BANKS assets Switzerland USB 1533 billion United state Citi group 1484 Billion Japan UFJ 1296 Billion United kingdom HSBC 1277 Billion France Credit Agricola group 1243 Billion Current assets of top 5 bank in world 10/4/2013MONEY & BANKING 49
  50. 50. Country Company Share holder equity United state Citi group 112537 $million United state JPMorgan chase 107211 $million United state Bank of America 101224 $million United kingdom HSBC 98226 $million Japan UFG 83281 $million Top 5 banking group in the world by shareholder equity 10/4/2013MONEY & BANKING 50
  51. 51. 10/4/2013MONEY & BANKING 51

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