The document discusses banks and central banks. It defines a bank as a financial institution that accepts deposits and makes loans. A central bank is the national bank that oversees a country's monetary system and implements monetary policy. The central bank has several functions, including issuing currency, acting as a bank for the government, overseeing commercial bank reserves, managing foreign exchange, acting as a lender of last resort, and controlling the money supply through interest rates and reserve requirements. The central bank uses both direct tools like interest rates and lending as well as indirect tools like open market operations and reserve requirements to implement monetary policy and achieve its targets of stabilizing prices and promoting employment.

1. Points Covered:
Bank Definition
Central bank :Definitions
Structure & Functions
Monetary policies
Target & Tools
Conclusion

2. Group Members:
Samrah Ishfaq
M.Shahbaz Ali
Rao M. Ayyub
Khalid Saifullah

3. What is Bank?
Definition:
• Institution
• Providing loans to lend
• And create the credit money
• Bank: An organization, usually a corporation, chartered by a state or federal government,
which does most or all of the following: receives demand deposits and time deposits,
honors instruments drawn on them, and pays interest on them; discounts notes, makes
loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's
checks; and issues drafts and cashier's checks.

4. Bank:
A financial establishment that uses money deposited by customers
for investment, pays it out when required, makes loans at interest, and
exchanges currency.

5. A national bank that provides financial and banking services for its
country's government and commercial banking system, as well as
implementing the government's monetary policy and issuing currency.
OR
“An institution charged with the responsibility of managing the
expansion and contraction of the volume of money in the interest of
general public welfare”
OR
a bank that does business with other banks and with the
government and that controls a country's money supply and
interest rates
What is Central Bank or central bank?

6. Organizational Structure

7. Functions of a Central Bank
Function of a central bank is to control the nation's money supply
(monetary policy), through active duties such as managing interest rates,
setting the reserve requirement, and acting as a lender of last resort to the
banking sector during times of bank insolvency or financial crisis.
Functions:
1. Bank of Issue
2. Banker, Agent and Adviser to the Government
3. Custodian of the Cash Reserves of Commercial Banks
4. Custodian of Foreign Balances of the Country
5. Controller of Credit
6. Other Functions

8. a. Bank of Issue
Central Bank has the exclusive monopoly of note issue and the
currency notes issued by the Central Bank are declared
unlimited legal tender throughout the country.
b. Banker, Agent and Adviser to the Government
As Banker and Agent, keeps the banking accounts of the
Central and State governments and makes and receives
payments on behalf of the government.
As an Agent to the government, the central bank collects taxes
and other payments on behalf of the government.
It provides short-term advances to the govt to tide over
temporary shortage of funds. It advises the govt on all
monetary and banking matters.
Functions of a Central Bank

9. b. Banker, Agent and Adviser to the Government
As Banker and Agent, keeps the banking accounts of the
Central and State governments and makes and receives
payments on behalf of the government.
As an Agent to the government, the central bank collects taxes
and other payments on behalf of the government.
It provides short-term advances to the govt to tide over
temporary shortage of funds. It advises the govt on all
monetary and banking matters.
c. Care of the Cash Reserves of Commercial Banks
All Commercial Banks keep part of their deposits as reserves
with the Central Banks and hence the name Reserve Bank of
Pakistan. Centralised cash reserves serve as the basis of a
larger and more elastic credit structure and helps Commercial
Banks to meet crises and emergencies.
Functions of a Central Bank

10. d. Care of Foreign Balances of the Country
CBP holds the foreign exchange assets of all commercial and
non-Commercial Banks of the country. It is the responsibility
of CBP to maintain the rate of exchange and manage exchange
control and other restrictions imposed by the State.
e. Lender of the last resort
As a lender of last resort, Central Bank assumes the
responsibility of meeting directly or indirectly all reasonable
demands for accommodation by the Commercial Banks.
g. Controller of Credit
controls the level of credit in the economy by either expanding
or contracting bank deposits.
Functions of a Central Bank

11. f. Central Clearance, Settlement and Transfer
As the Central Bank keeps cash reserves of Commercial Banks,
it is easier for member banks to settle their mutual claims in the
books of the Central Bank. These are the clearing house
operations of CBP where in cheques are cleared, claims settled
and funds transferred in the books of the member banks.
Other Functions:
 It brings uniformity in the monetary system of note issue and note
circulation.
 It economies the use of cash by banks while settling their claims
and counter-claims.
 It enables the commercial banks to carry on their activities even
with their limited cash reserves.
 It provides financial help to the commercial banks in times of
emergency.
 The central bank also earns profit from the issue of paper
currency.
Functions of a Central Bank

12.  Central Bank
 It is apex institution of
monetary systems
 It is owned by government
 It is non profit org.
 It is banker and agent to
government
 It controls credit created by
commercial banks
 It has monopoly to note issue
 It has no competition
 There is only one central
bank in economy
 Commercial Bank
 It is operating as per
guideline of central bank
 It owned by private sector or
government
 It is a profit seeking org.
 It is banker and agent to
public
 It creates credit
 It has no power to issue credit
 There is a competition among
themselves.
 Commercial banks are many
in number
Difference between Central and Commercial
Bank

13. CONCLUSION
1. Central bank plays important role in achieving economic growth
of a developing country.
2. It promotes economic growth with stability.
3. It helps in attaining full employment of resources, in
overcoming balance of payment disequilibrium & in stabilizing
exchange rates.

14. Monetary policy
Targets & its Tools

15. Definition:
 “Monetary policy is concerned with deciding how
much money the economy should have or perhaps
more correctly deciding whether to increases or
decrease the purchasing power of money.”
According to McConnell:
 “Changing the money supply to assist the
economy to achieve a full employment”.
MONETARY POLICY

16.  Contractionary / Tight monetary policy
“Tight monetary policy, also called
contractionary monetary policy, tends to curb inflation
by contracting/reducing the money supply”
Expansionary /Easy monetary policy
“Easy monetary policy, also called expansionary
monetary policy, tends to encourage growth by
expanding the money supply.
TYPES OF MONETARY POLICY

18.  Money supply:
There are several standard measures of the
money supply, including the monetary base, M1,
and M2. The monetary base is defined as the sum
of currency in circulation and reserve balances.
 Interest rate:
The proportion of a loan that is charged as
interest to the borrower, typically expressed as an
annual percentage of the loan outstanding.
TARGET OF MONETARY POLICY

19.  Employment, economic growth, and inflation
can not control directly, it must choose
settings, or targets, for variables that it can
control in order to best achieve its goals.
 In practice, there are two types of targets:
1. Money supply targets
2. Interest rate targets
TARGETS FOR MONETARY POLICY

22.  Quantitative Tools:
Open Market Operations
Bank Rate
Cash Reserve Requirement
Liquidity ratio
Special deposit
 Qualitative Tools:
Credit rationing
Credit ceiling
Moral persuasion
Direct action
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TOOLS OF MONETARY POLICY

23. These tools are used to establish limits on interest rates, credit
and lending. These include direct credit control, direct interest rate
control and direct lending to banks as lender of last resort, but they
are rarely used in the implementation of monetary policy by the
Bank.
 Interest rate controls
 Lending to domestic banks
 Credit controls
DIRECT POLICY TOOLS

24. Used more widely than direct tools, indirect policy tools
seek to alter liquidity conditions. While the use of reserve
requirements has been the traditional monetary tool of choice,
more recently, the Bank shifted towards the use of open market
operations to manage liquidity in the financial system and to
signal its policy stance.
 Secondary reserve requirement
 Cash reserve requirements
 Asecurities requirement
INDIRECT POLICY TOOLS

25. ANY QUESTION