MONEY• Money is defined as anything that acts as a medium of exchange• Function of money:3.medium of exchange4.measure of value / unit of account5.store of value6.standard deffered payment
Types of Money• commodity money• fiat money• legal tender• token money• demand deposit
Money supply• M1 = narrow money = is also a money transaction in which the money is directly used for transactions. currency - coins + paper money ( fiat money) checkable deposits = demand deposit by commercial bank.M1 = currency + demand deposit
M2 = near money = items that are highly liquid financial assets such as a saving account, fixed deposits, negotiable certificates by Bank Negara or commercial banks.Near monies also known as quasi moneyM2 = M1 + saving and fixed deposits in commercial banks + NCD + repos + Bank Negara Certificates.
• M3= Broad money, which is the broadest in definition.• M3 = M2 + fixed and saving deposit in other financial institutions.• Other financial institutions = includes are merchant banks, Bank Islam Malaysia Bhd, Finance companies and Discount Houses.• Broad near money(quasi money) = M3- M1
Quantity Theory Of Money• By Irvin Fisher: the quantity theory of money provides that the changes in money are related to changes in the price level, which is measured by the consumer price index (CPI)• MV = PT• M= money circulation• V= velocity• P= price level• T= total transaction
COMMERCIAL BANK FUNCTIONS :1. Accepting deposits2. Providing Loans and advances3. Providing other banking services and facilities
CENTRAL BANKFUNCTIONS:1. Issuing currencies2. To act as a banker to the government3. Banker to other banks4. To promote monetary stability and financial structure5. Be a holder of the country of gold and foreign currency reserves.