Money and credit

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  • 1. MONEY AND CREDIT
  • 2. MONEY: The use of money spans a very large part of ourdaily lifelook around you and youWould easily be able to identify several transactionsinvolving money in a single day. Money is also used as a exchanging medium.Credit : Credit encompasses any form of deferred payment. Credit isextended by a creditor, also known as a lender, to a debtor,also known as a borrower.
  • 3. DEFINATION OF BANK
  • 4. DEPOSITS WITH BANKS The other form in which people hold money is as deposits with banks. At a point of time , people need only some currency for their day-to-day work needs. For instance, workers who receive their salaries at the end ofeach month have extra cash at the beginning of the month. Then to save money people deposit money into the bank. Banks accept the deposit and also pay an amount as anintrest on the deposits. In this way people money is safe with the banks and it earns an amount as intrest.
  • 5. • Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.• The main functions of money are distinguished as:• a medium of exchange;• a unit of account;• a store of value;• and, occasionally in the past, a standard of deferred payment. Any kind of object or secure verifiable record that fulfills these functions can serve as money.
  • 6. 1)credit is the trust which allows one party to provide resources to another partywhere that second party does not reimburse the first party immediately , but insteadarranges either to repay or return those resources (or other materials of equal value) ata later date. The resources provided may be financial or they may consist of goods orservices. Credit encompasses any form of deferred payment. Credit is extended bya creditor, also known as a lender, to a debtor, also known as a borrower.2)Credit does not necessarily require money. The credit concept can be applied inbarter economies as well, based on the direct exchange of goods and services .However, in modern societies credit is usually denominated by a unit of account. Unlikemoney, credit itself cannot act as a unit of account.Movements of financial capital are normally dependent on either creditor equity transfers. . Credit is also traded in financial markets.
  • 7. Where Does Your Money Go? Track expenses for one month  What did you buy  Which were needs vs. wants  Patterns of spending Categorize spending (clothing, food, etc.) Identify future spending (car, etc.)
  • 8. The defination of money• Anything that serves all three of the following is called as money-• means of payment or medium of exchange• Unit of account• Store of value
  • 9. MODERN FORMS OF MONEY We have seen that money is something that can act as a medium of exchange in transactions . before the introduction of coins, a variety of objects was used as money. Modern forms of money include: 1)Currency 2)Deposits from banks
  • 10. LOAN ACTIVITIES OF BANKS• There is an interesting mechanism at work here .banks keep only a small proportion of their deposits as cash with themselves.• For example, banks in india these days hold about 15% of their deposits as cash .• This is kept as provision to pay the depositors who might come to withdraw money from the bank on any given day. Since, on any particular day, only some of its many depositors come to withdraw the cash , the banks is able to manage with this cash.
  • 11. TWO DIFFERENT CREDIT SITUATION A large number of transaction in our day-to-day activities involves credit in some form or the other. Credit(loan) refers to an agreement in which thelender supplies the borrower with money , goods orservice in return for the promise of future payment . Let us see how credit works through the following two example: 1)Profit of credit(festival season) 2)Loss due to credit(swapna problem)
  • 12. TERMS OF CREDIT• Every loan agreement specifies an intrest rate which the borrower must pay to the lender along with the repayment of the principal. In addition , lenders may demand collateral against loans.• Collateral is an asset that the borrower owns and uses this as a guarantee to the lender until the loan is repaid .• If the borrower fails to repay the loan , the lender has the right to sell the asset or collateral to obtain payment. Property such as land titles, deposits with banks, livestock are some common example of collateral used for borrowing.
  • 13. Money supplyIn economics, money is a broad term that refers toany financial instrument that can fulfill the functions of money(detailed above). These financial instruments together arecollectively referred to as the money supply of an economy. Inother words, the money supply is the amount of financialinstruments within a specific economy available forpurchasing goods or services. Since the money supplyconsists of various financial instruments (usually currency,demand deposits and various other types of deposits), theamount of money in an economy is measured by addingtogether these financial instruments creating a monetaryaggregate.
  • 14. FunctionsIn the past, money was generally considered to have the following functions:1) "Money is a matter of functions four,2) a medium,3) a measure,4) a standard,5) a store.6) " That is, money functions as a medium of exchange, a unit of account, a standard of deferred payment, and a store of value.However, that of medium of exchange,7) unit of account, and store of value, not considering a standard of deferred payment as a distinguished function, but rather subsuming it in the others.
  • 15. Thank you!