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“ The Monetary System”
Group Members <ul><li>Miss Samavia Munir </li></ul><ul><li>Miss Sehrish Taj </li></ul><ul><li>Mr. Naeem </li></ul><ul><li>...
Contents <ul><li>Definition of Money… </li></ul><ul><li>Kinds Of Money </li></ul><ul><li>Functions Of Money </li></ul><ul>...
What is Money????
<ul><li>“ Money is a good that acts as a medium of exchange in transactions, it is said that money act as a unit of accoun...
Properties Of Money <ul><li>Liquidity </li></ul><ul><li>Scarcity </li></ul><ul><li>Portability </li></ul><ul><li>Uniformit...
Mr. Aqeel Abbas
Kinds Of Money <ul><li>Commodity money  </li></ul><ul><li>Convertible paper money  </li></ul><ul><li>Inconvertible money  ...
Commodity money <ul><li>Can be used for other purposes. </li></ul><ul><li>Have inherent value. </li></ul><ul><li>Examples ...
Convertible Paper Money <ul><li>The paper money that can be convertible into gold and silver. </li></ul><ul><li>Examples a...
Inconvertible Paper Money <ul><li>The paper money that can’t be converted into Gold and Silver. </li></ul><ul><li>Also cal...
Bank Deposits <ul><li>In current society most of the money used is Bank deposits… </li></ul><ul><li>Examples of Bank Depos...
Electronic Money <ul><li>The money stored in certain electronic cash cards. </li></ul><ul><li>Transactions are made electr...
Mr. Naeem
Functions of Money
Money as Medium of Exchange <ul><li>No wastage of time. </li></ul><ul><li>Higher volume of transactions. </li></ul><ul><li...
Money as a unit of Account <ul><li>Provide a common measurement for the relative value of goods. </li></ul><ul><li>The mon...
Money as a store of Value <ul><li>Ability of money to store value over the time. </li></ul><ul><li>Durability factor enabl...
Miss Sehrish Taj
Are credit cards money???
Why people hold money???
Three motives of holding money!!! <ul><li>Transactions Demand </li></ul><ul><li>Precautionary Demand </li></ul><ul><li>Spe...
Transactions Demand <ul><li>Stock of money to pay everyday expenses. </li></ul><ul><li>Quick and easy purchases are main p...
Precautionary Motives <ul><li>The stock of money for uncertain expenses. </li></ul><ul><li>People who don’t want to go for...
Speculative Motives <ul><li>Holding of money due to the expected rise in interest rates. </li></ul><ul><li>People use to c...
INTEREST <ul><li>The major factor to determine the stock of money held by people is the INTEREST!!! </li></ul>
Mr. Suhail Anjum
Money Supply Definitions
Monetary Base <ul><li>M1 </li></ul><ul><li>Sum of currency in the hands of non-public and stock of cheque account deposits...
Broad Money <ul><li>M3 plus the public’s deposits at non-bank financial institutions less currency and bank deposits held ...
Currency <ul><li>Includes coins and paper money.  </li></ul><ul><li>It constitute 20% of the M1 money supply. </li></ul><u...
Cheque Account Deposits <ul><li>The total of cheque accounts balances in banks convertible to currency on demand by writin...
Determination of Interest Rate
Equilibrium Interest Rate
Excess quantity of money demanded Excess money demand Interest rate rises People sell Bonds Bonds prices fall Excess deman...
Excess quantity of money supplied Excess money supplied Interest rate falls People buy Bonds Bonds prices rises Excess sup...
Thanks a lottt!!!
 
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Functions Of Money

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Transcript of "Functions Of Money"

  1. 2. “ The Monetary System”
  2. 3. Group Members <ul><li>Miss Samavia Munir </li></ul><ul><li>Miss Sehrish Taj </li></ul><ul><li>Mr. Naeem </li></ul><ul><li>Mr. Aqeel Abbas </li></ul><ul><li>Mr. Suhail Anjum </li></ul>
  3. 4. Contents <ul><li>Definition of Money… </li></ul><ul><li>Kinds Of Money </li></ul><ul><li>Functions Of Money </li></ul><ul><li>The Demand For Money </li></ul><ul><li>Four Money Supply definitions </li></ul><ul><li>Determination of Rate of Interest </li></ul>
  4. 5. What is Money????
  5. 6. <ul><li>“ Money is a good that acts as a medium of exchange in transactions, it is said that money act as a unit of account, a store of value and medium of exchange” </li></ul>
  6. 7. Properties Of Money <ul><li>Liquidity </li></ul><ul><li>Scarcity </li></ul><ul><li>Portability </li></ul><ul><li>Uniformity </li></ul>
  7. 8. Mr. Aqeel Abbas
  8. 9. Kinds Of Money <ul><li>Commodity money </li></ul><ul><li>Convertible paper money </li></ul><ul><li>Inconvertible money </li></ul><ul><li>Bank deposits </li></ul><ul><li>Electronic money </li></ul>
  9. 10. Commodity money <ul><li>Can be used for other purposes. </li></ul><ul><li>Have inherent value. </li></ul><ul><li>Examples </li></ul><ul><li>Gold, Silk, Cattle, Silver </li></ul>
  10. 11. Convertible Paper Money <ul><li>The paper money that can be convertible into gold and silver. </li></ul><ul><li>Examples are Gold and Silver certificates… </li></ul>
  11. 12. Inconvertible Paper Money <ul><li>The paper money that can’t be converted into Gold and Silver. </li></ul><ul><li>Also called as Legal Tender Money. </li></ul><ul><li>Examples are Notes and Coins issued by government. </li></ul>
  12. 13. Bank Deposits <ul><li>In current society most of the money used is Bank deposits… </li></ul><ul><li>Examples of Bank Deposits are </li></ul><ul><li>Demand deposits </li></ul><ul><li>Savings deposits </li></ul><ul><li>Time deposits </li></ul><ul><li>Negotiable certificates of deposit </li></ul>
  13. 14. Electronic Money <ul><li>The money stored in certain electronic cash cards. </li></ul><ul><li>Transactions are made electronically. </li></ul><ul><li>Examples are Credit Card, Debit card, Charge card etc… </li></ul>
  14. 15. Mr. Naeem
  15. 16. Functions of Money
  16. 17. Money as Medium of Exchange <ul><li>No wastage of time. </li></ul><ul><li>Higher volume of transactions. </li></ul><ul><li>Remove the problem of coincidence of wants. </li></ul><ul><li>Widely acceptable. </li></ul><ul><li>Increase level of Trade. </li></ul>
  17. 18. Money as a unit of Account <ul><li>Provide a common measurement for the relative value of goods. </li></ul><ul><li>The monitory unit may have different name in different countries. </li></ul>
  18. 19. Money as a store of Value <ul><li>Ability of money to store value over the time. </li></ul><ul><li>Durability factor enables to convert your income into future purchases. </li></ul><ul><li>Completely liquid. </li></ul><ul><li>However inflation can destroy this function. </li></ul>
  19. 20. Miss Sehrish Taj
  20. 21. Are credit cards money???
  21. 22. Why people hold money???
  22. 23. Three motives of holding money!!! <ul><li>Transactions Demand </li></ul><ul><li>Precautionary Demand </li></ul><ul><li>Speculative Demand </li></ul>
  23. 24. Transactions Demand <ul><li>Stock of money to pay everyday expenses. </li></ul><ul><li>Quick and easy purchases are main push to hold money. </li></ul><ul><li>The holder has to suffer “cost of holding”, namely interest rate you forego. </li></ul>
  24. 25. Precautionary Motives <ul><li>The stock of money for uncertain expenses. </li></ul><ul><li>People who don’t want to go for loans have great interest to hold money. </li></ul><ul><li>Opportunity cost incurs of the interest forego. </li></ul>
  25. 26. Speculative Motives <ul><li>Holding of money due to the expected rise in interest rates. </li></ul><ul><li>People use to convert their money into interest bearing instruments such as bonds, stocks and other non-money financial assets. </li></ul><ul><li>People hold more when interest rate is low and hold less when interest rate is high. </li></ul>
  26. 27. INTEREST <ul><li>The major factor to determine the stock of money held by people is the INTEREST!!! </li></ul>
  27. 28. Mr. Suhail Anjum
  28. 29. Money Supply Definitions
  29. 30. Monetary Base <ul><li>M1 </li></ul><ul><li>Sum of currency in the hands of non-public and stock of cheque account deposits at banks. </li></ul><ul><li>M3 </li></ul><ul><li>Sum of M1 plus all other bank deposits of non-bank public. </li></ul>
  30. 31. Broad Money <ul><li>M3 plus the public’s deposits at non-bank financial institutions less currency and bank deposits held by these NBFI’s. </li></ul>
  31. 32. Currency <ul><li>Includes coins and paper money. </li></ul><ul><li>It constitute 20% of the M1 money supply. </li></ul><ul><li>Its purpose is to make small purchases. </li></ul>
  32. 33. Cheque Account Deposits <ul><li>The total of cheque accounts balances in banks convertible to currency on demand by writing a cheque without advance notice. </li></ul><ul><li>Saving Deposits </li></ul><ul><li>Inteset bearing accounts in banks drawnable by issuing pass book. </li></ul>
  33. 34. Determination of Interest Rate
  34. 35. Equilibrium Interest Rate
  35. 36. Excess quantity of money demanded Excess money demand Interest rate rises People sell Bonds Bonds prices fall Excess demand for money causes interest rates to rise.
  36. 37. Excess quantity of money supplied Excess money supplied Interest rate falls People buy Bonds Bonds prices rises Excess supply for money causes interest rates to fall.
  37. 38. Thanks a lottt!!!
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