3. Drawbacks of Bartersystem Difficulty of double coincidence of wants Lack of a measure of value Lack of store of value Lack of a standard of deferred payments
4. MONEY Money is what money does Functions of Money Primary functions Secondary functions Contingent functions
5. Primary Functions Medium of exchange Measure of value
6. Secondary Functions Store of value Standard of deferred payment Transfer of value
7. CONTINGENT FUNCTIONS Basis of creadit Liquidity Distribution of national income Guarantor of solvency
8. Classification of Money Full - bodied money Representative full bodied money Credit money
15. COMMERCIAL BANKS Commercial Banks are very Important Institution in the Modern Economy
16. Functions of Commercial Bank Primary Functions Secondary Functions Development Functions
17. PRIMARY FUNCTIONS Accepting deposit Lending money Discounting bill of exchange Credit creation Investment
18. SECONDARY FUNCTIONS Secondary functions classified into Agency functions and Miscellaneous Agency Functions Transfer of funds Collection of funds Collection of dividend Payment of bills,Insurance premium Purchase and sale of financial securities Execution of wills
34. BANK RATE The bank rate is the rate at which the central bank rediscounts the first class securities of commercial banks.
35. Open Market Operations Open market operations Refer to the purchase and sale of government securities by the commercial banks.
36. Reserve Ratios Commercial banks are required to keep a certain percentage of their deposits with the central bank as cash reserve .This is known as Cash Reserve Ratio.
37. Margin Requirement When banks lend money to finance a purchase by a borrower , normally , the entire amount is not given as loan . The borrowers are required to bring in a particular percentage of the value of the purchace. This percentage of value of purchase is called the margin requirement.
38. MoralSuasion Moral suasion is the moral pressure applied by the Central bank on commercial banks to contract or expand credit.
39. Direct Actions Direct action is resorted to when moral suasion does not work. Direct action involves punishing the erring banks