chapter 5 - money and banking for BBA

Money and Banking
 “If money were to grow on trees,
everybody would be dealing in bananas.”
2

Definition and functions
money
 Money is something which is generally
accepted as a medium of exchange.
 Before money came into existence, exchange
took place through barter system. Barter
occurs when people directly exchange their
goods for someone else's goods.” The barter
system has certain advantages:
1. Simple and reduces the complexity of the
modern monetary system
2. There is no question of over/under production
3

money
3. The problem of international trade such as
foreign exchange crisis, adverse BoP do not
occur in barter system
4. There is no problem of concentration of
economic power in the hands of few since
things can not be stored for long.
4

money
Difficulties of barter system:
1. Lack of double coincidence of wants
2. Absence of common measure of value
3. Lack of divisibility
4. The problem of storing wealth
5. Difficulty of deferred payments
6. Problem of transportation
5

money
Evolution and development of money
 Animal money: In ancient India, according to Veda,
Go Dhan (cow –wealth) was accepted as a form of
money. In Roman state up to 4th
century BC, cow and
sheep were officially recognized as money used for
collecting taxes and fines.
 Commodity money: In many countries, a number of
commodities like bows, arrows, animal skins, shells,
precious stones, rice, tea were used as money. The
selection of commodity was dependent on factors like
the location of the community, climate of the region,
cultural economic development of the society. For
example, community living close to sea shore chose
shells, fish hooks as money.
6

money
3. Metallic money (uncoined metals and coins): Along with
the growth of society from pastoral to commercial
stage, the composition of money also changed from
animal and commodity money to metallic money. Gold
and silver were mainly used a money.
4. Paper money: Initially paper receipts against metallic
money carried by merchants for safety. Later, scarcity
of metals led to the introduction of convertible paper
currency i.e. paper money convertible into metals. But
in the later stage, paper money developed into fiat
money i.e. paper money not convertible into metals.
7

money
5. Credit money: Mainly cheques issued against
the demand deposits.
6. Near Money: In recent days near money are
also accepted as money since they provide
almost all the major functions of money.
Such money are bills of exchange, treasury
bills, bonds, debentures, savings certificates
etc.
8

money
Classification of money:
1. Metallic:
 Standard Money - Under this, face value of
money is equal to intrinsic value. Such money are
also called as full bodied coins.
 Token Coins - Under this, face value is always
greater than intrinsic value. Such money are also
called as representative coins.
 Subsidiary Money - Coins minted to assist for
transaction are token coins e.g. coins of less than
one rupee.
9

money
2. Paper Money:
 Representative Paper Money - Paper money
issued with 100 % backing of gold and silver are
called representative money.
 Convertible - Though the backing of the
currency is less than 100 % but still the currency
are convertible into gold on demand.
 Inconvertible - also called fiduciary money.
Present bank notes come under this category.
They don't have 100 % backing neither
convertible into gold on demand. Backed by the
law of the government. Also called fiat money.
10

money
3. Credit Money: Cheque or draft come under this
category. Such money are not legal tender but
highly used in present day economic
transactions.
11

money
Definition:
 In simple term, anything that is generally
acceptable as a means of exchange and at
the same time acts as a measure and
store of value is called money.
 Approaches to the definition:
1. Traditional approach: Money is regarded
only as a medium of exchange. According to
this approach, money includes currency (C)
and demand deposits (D). This approach is
analytically superior because it provides the
most liquid and exact measure of money.
12

money
Definition:
2. Monetarist approach: The Chicago school led by Milton
Friedman defined money anything that serves the
function as a temporary abode of purchasing power.
According to this approach, money =
currency+demand deposits+ time deposits.
This approach emphasizes on the store of value function of
money and provides a broader measure of money.
3. Gurley and Shaw approach: John Gurley and Edward
Shaw further widened the approach of money .
According to this approach, money includes currency
+demand deposits +time deposits+ the liabilities of
non-banking intermediaries.
The liabilities of non-banking intermediaries cover saving
bank deposits, shares, bonds etc and are close
substitutes of money.
13

money
Definition:
4. The Radcliffe Approach: This is also known as liquidity
approach based on the recommendations made by the
committee of Radcliffe in 1959 in the UK. According to
this approach, money covers the whole liquidity
position that is relevant to spending decisions. The
spending is not limited to the amount of money in
existence. It is related to the amount of money that
people think they can get hold of whether by receipts of
income, by disposal of assets or by borrowing. Thus
money supply includes: cash + all kinds of bank
deposits + deposits with other institutions +near money
assets + borrowing facilities available to the people.
14

money
What is the best definition?
 There is no clear answer on this. There are many
official definitions such as M1, M2, M3 etc.
 The definition of money depends on the purpose. For
example, if one asks which definition of money supply
is the most controllable by monetary authority, the
answer is the narrow medium of exchange. But if one
wants to know which correlates best with the economic
activity, the broader liquidity definition.
 There are strong arguments against the view of Gurley,
Shaw and Radcliffe committee. Critics say that
liabilities of nonbank institutions do not work as the
medium of exchange and are not under the control of
monetary authority.
15

money
 Functions of Money
 The definition of money is anything that
serves as a medium of exchange, unit of
account, and a store of value. That is why
throughout history, money has taken the form
of precious metals, furs, and even cigarettes.
Functions of money also relate to the
definition of money.
16

money
1. Money as a Medium of Exchange. If one of
society's goals is to expand the number of
transactions, then the function of medium of
exchange is vitally important. Medium of exchange
means that money is widely accepted in exchange
for goods and services. It stimulates and increases
trade by providing an easy method of exchange.
Since coins and currency are small and portable,
money is an effective medium of exchange. This
useful feature makes bartering unnecessary.
17

money
2. Money as a Unit of Account. This function
of money provides a common measurement
of the relative value of goods and services.
Without money, there is no common
denominator. How would a farmer know how
many bushels of corn it would take to buy
tools from a hardware store? How would
governments collect taxes? Or for that
matter, spend money on programs?
18

money
3. Money as a Store of Value. A third function of
money is its use as a store of value. This means
money has the ability to hold value over time. This
makes money a useful mechanism for transforming
income in the present into future purchases. This
function is valuable if we look at the barter system.
Imagine you are a farmer. You have a crop to sell,
let's say apples. How would you make future
purchases? Your apples might spoil and lose their
value. Not so with money.
19

money
4. Money acts as a standard of deferred payments:
During the barter system there was a problem of
future payments. Money has helped for the future
payments of present borrowings.
5. Money as a transfer of value: There was also
difficulty to transfer the value from one place to
another during the barter system since the value or
the property were in terms of kind and was difficult
to transfer from one place to another. Now money
has helped to transfer the value easily from one
place to another.
20

money
In short, the functions of money can be
summed up as below:
“Money is a matter of functions four,
A medium, a measure, a standard, and a
store;
As this does not complete the picture,
We may add transferability more.”
21

Banking system and the
economy
 Bank-A financial institution whose main activities are
borrowing and lending money. Banks borrow by
accepting deposits from the general public or other
financial institutions. Bank loans are an important
source of finance for firms, consumers, and
government.
 According to Miller and Vanhoose, banking
development is attributed to: (1) Goldsmith Bankers,
and (2) The merchant
(from Money, Banking and Financial Markets by Roger
Leroy Miller and David Vanhoose)
22

The goldsmith bankers
 The first goldsmith bankers can not be traced
with certainty to any specific time or place.
There is evidence that such activities took
place in Mesopotamia sometimes during the
first millennium B.C. In ancient Greece
goldsmith operations existed in Delphi,
Didyma, and Olympia at least as early as the
seventh century BC. By sixth century B.C.,
banking was a well developed feature of the
economy of Athens.
23

Bullion and asymmetric information:
 In the earliest times, people used uncoined gold and
silver, known as bullion, to make transactions. But
by using bullion people exposed themselves to
asymmetric information problems: adverse selection
and moral hazard. Adverse selection was that
mostly those people whose bullion contained less
pure gold or silver were ready to make transaction.
And moral hazard was that the trader offering bullion
in exchange for goods and services has an incentive
to reduce the purity of gold.
 Goldsmith specialized in reducing the extent of
these asymmetric information problems.
24

Bullion and asymmetric information:
 Parties to a transaction would pay a goldsmith to
weigh bullion and to assess its purity. Many
goldsmiths would issue the holder of bullion a
certificate attesting to the bullion’s weight and gold
or silver content.
 Other goldsmiths went a step further. To provide the
holder of bullion with ready proof of the bullion’s
weight and purity, they produced standardized
weights of gold or silver that they imprinted with a
seal of authenticity. These standardized units were
the earliest coins.
25

Bullion deposits and fractional reserve banking:
 Eventually, some goldsmiths simplified the process
further by issuing paper notes indicating that the
bearers held gold or silver of given weights and
purities on deposit with the goldsmith. Then the
bearers of notes could transfer the notes to others in
exchange for goods and services. These were the
first paper money. The gold and silver held on
deposit with goldsmiths were the first bank deposits.
 Once goldsmiths became depository institutions,
they took the final step toward modern banking by
becoming lenders.
26

Bullion deposits and fractional reserve banking:
Goldsmiths noticed that withdrawals of bullion relative to
new bullion deposits were fairly predictable. As long as
the goldsmiths held reserves of gold and silver to cover
expected bullion withdrawals, they could lend paper
notes in excess of the amounts of bullion that they
actually kept on hand.
 By lending funds in excess of the reserves money (gold
and silver bullion) that they actually possessed, these
goldsmith bankers developed the earliest form of
fractional-reserve banking. A system in which banks hold
reserves equal to less than the amount of total deposits.
27

The merchant
 The merchant: The modern term bank
derives from the merchants’ bench, or banco,
on which money changed hands in the
marketplaces of medieval Italy. During the
medieval period of the twelfth and thirteenth
centuries A.D., merchant bankers flourished
throughout Italy.
28

The merchant
 Because of the possibility of theft of metallic
money, the early traders having high
reputation and credit began to issue
documents which were taken as titles of
money. This gave rise to the institution of
‘hundi’ or the letter of transfer whereby the
banker directs another banker to pay the
bearer of hundi the specified amount of
money and debit this amount against the
drawer of hundi.
29

The advent of modern banking
 While most of the Italian merchant bankers
quarreled, those originally from the Lombardy region
of Italy worked to maintain their merchant banking
operations in other European locales, such as
London and Berlin. In London, the Italian merchant
bankers became such an important fixture that the
city’s financial dealings were centered around
Lombard street, which remains the financial heart of
city today. The German central bank, the Deutche
Bundesbank, called one interest rate at which it lent
funds to private banks the Lombard rate.
30

economy
 Now, after knowing the brief history of banking, think
why there is the need of financial intermediaries.
 In an ideal world one can think that there is perfect
competition, with public information and costless
contract negotiation and enforcement.
 But, in the real world, there are market frictions
arising from information costs (asymmetric
information which result in adverse selection and
moral hazard), transactions costs, monitoring costs,
and enforcement costs.
 Because of the market friction, the need of the
financial intermediaries arises.
31

What do financial intermediaries
do?
 Mobilizing savings
 “immense works”. In their absence, saving behavior would
be different. Remember the role of financial intermediaries
in Japan and other East Asian economies during 1960s in
mobilizing savings.
 Allocating capital/ Efficient allocation of
resources
“… the banker authorizes the entrepreneur in the
name of society to innovate …”
 Implications for small firms and poverty
 Monitoring firms/Exerting corporate control
32

What do financial intermediaries
do?
 Ease trading of goods, services and contracts
(Payment system).
The story of a French singer is mentioned by
economist Stanley. For her melodious voice, the
singer was offered fruits, pigs, poultry and lots of
other things but finally she couldn’t carry any things
except a few. But today, the role of the payment
system is much more.
 Augmenting liquidity and managing risk
 “the financial revolution was a necessary precondition for
the industrial revolution” Sir John Hicks
33

economy
 Getting the financial system to work well is
critical to the success of an economy. To
understand why, we need to recognize that
the financial system is like the brain of the
economy: it is a coordinating mechanism that
allocates capital to building factories, houses
and roads. If capital goes to the wrong uses
or does not flow at all, the economy will
operate inefficiently and economic growth will
be low.
34

economy
 No work ethic can compensate for a
misallocation of capital. Working hard will not
make a country rich because hard-working
workers will not be productive unless they
work with the right amount and kinds of
capital.
35

economy
 Brain is more important than brawn, and similarly an
efficient financial system is more important than
hard work to an economy’s success. Indeed,
workers in poor countries often work longer hours
than their counterparts in rich countries, and yet
they remain poor. When they emigrate to countries
with a superior financial system, they often become
very rich.
 Look how successful immigrants from India have
been in the United States: their average income now
makes them one of the richest groups in the U.S.
(Fredric Mishkin, the Next Great Globalization).
36

economy
 Empirical evidences drawn by King and LevineEmpirical evidences drawn by King and Levine
and by many others also show that impact ofand by many others also show that impact of
finance on development runs primarily throughfinance on development runs primarily through
productivity!productivity!
 “ … the banker authorizes the entrepreneur
in the name of society to innovate …”
 How about microeconomic evidence?
37

economy
 Rajan/Zingales:
 Industries that are naturally heavy users of external
finance benefit disproportionately from financial
development.
 Demirguc-Kunt/Maksimovic:
 Countries with better financial systems ease financing
constraints and allow firms to grow faster.
 Beck, Demirguc-Kunt, Laeven, & Levine:
 Small firms benefit disproportionately from financial
development.
38

economy
 Finance  Poverty Alleviation ... Big!
 If Peru had the level of financial development
as Chile 13% vs. 54%), then ...
 2% living on less than $1/day
 Actual level: 15%
39

economy
Number of people living in poverty
Year Indonesia Republic of
Korea
Thailand
1990
1996
1998
1999
2000
80.9
50.6
NA
76.3
70.3
14.7
4.7
9.1
NA
6.0
18.4 (1988)
7.5
7.6
9.7
8.7
40

economy
 Banks are one form of financial
intermediaries.
 Banks, on the basis of their nature of work,
can be categorized into: central bank,
commercial banks, development banks,
industrial banks, exchange banks, savings
banks and so on.
 Banks, on the basis of ownership, can be
classified into public bank, private bank,
foreign bank, joint venture bank.
41

Functions of commercial
banks
According to R. R. Paul, Commercial Banks
perform following functions:
 Accepting Deposits in various types of
accounts such as fixed (time), saving
and checking account.
 Advancing loans in the form of
commercial and industrial loans, consumer
loans, real estate loans, inter bank loans,
overdraft etc.
42

banks
3. Credit Creation: a natural outcome of the loan
advancing process. When a bank advances a loan
to its customer, it does not lend cash but opens an
account in the borrower's name and credits the
amount of loan to this account. Thus, whenever a
bank grants a loan, it creates an equal amount of
bank deposit. Creation of such deposits is called
credit creation which results in a net increase in
the money stock of the economy. Banks have the
ability to create credit many times more than their
deposits and this ability of multiple credit creation
depends upon the cash-reserve ratio of the banks.
43

banks
4. Agency Functions:
 Remittance of Funds
 Collection and Payment of Credit Instruments like
cheques, bills of exchange, promissory note, etc.
 Execution of Standing Orders
 Purchasing and Sale of Securities
 Collection of Dividend's on Shares
 Acting as Trustee and Executor
 Acting as Representative and Correspondent
44

banks
5. General Utility Function
 Locker Facility
 Traveler's Cheques
 Letter of Credit.
 Collection of Statistics
 Underwriting Securities
 Foreign Exchange Business.
45

Functions of CBs
R.R. Paul says CBs help development in developing
economies through following functions:
 Capital formation
 Encouraging entrepreneurial innovation
 Monetization of economy
 Influencing economic activity through altering interest
rates and exte4dnign credit
 Implementation of monetary policy
 Promotion of trade and industry
 Encouragement to right type of industries
 Regional development
 Development of agriculture and other neglected
sectors
46

Balance sheet of CBs in Nepal:
NRB Directives Form no 9.1
Liabilities Rs. Assets Rs.
1. Capital and Reserve fund 1. Cash Balance
2. Borrowings 2. Bank Balance
3. Deposits 3. Money at call
4. Bills Payable 4. Investment on bonds
5. Other Liabilities 5. Shares and other investment
6. Reconciliation 6. Loan and advances
7. Profit and loss account 7. Bills Purchase
8. Loan against bills collection
9. Fixed assets
10. Others assets
11. Deferred expenditure
12. Non Banking assets
13. Reconciliation
14. Profit and loss account
Total Total 47

Credit creation
“Loans are the children of deposits, and
deposits are the children of loans”.
48

Credit creation
 Bank credit means bank loans and advances. A
bank keeps a certain portion of its deposits as
minimum reserve for meeting the demand of the
depositors and lends out the remaining excess
reserve to earn income. The bank loan is not paid
directly to the borrower but is only credited in his
account. Every bank loan creates an equivalent
deposit in the bank. Thus, credit creation means
multiple expansion of deposits. The word creation
refers to the ability of bank to expand deposits as
multiple of its reserves.
49

Credit creation
Basic concepts
1. Bank as a business institution
2. Bank deposits
 Primary deposits: When a bank accepts cash from
the customer and opens a a deposit account in his
name, it is called primary deposit. Primary deposits
simply convert currency money into deposit
money.
 Secondary or derivative deposits: When a bank
advances loan to its customers, it opens a deposit
account in his name instead of giving him cash.
This is called secondary or derivative deposit.
Every loan creates a derivative deposit. Creation
of derivative deposit means creation of credit.
50

Credit creation
Basic concepts
3. Cash reserve ratio: Banks do not hold their
deposits in reserve. From their general experience,
they know that all depositors will not withdraw all
deposits at the same time. They keep a fraction of
the total deposits for meeting the cash demand of
the depositors and lend out the remaining excess
reserves.
4. Excess reserves: The reserve that a bank hold
above the required reserve is called excess
reserve. Excess reserves are equal to total
deposits- required reserves. It is the excess
reserve out of which loans are granted and credit
is created.
51

Credit creation
Basic concepts
5. Credit multiplier: Credit multiplier is the
ratio between the total amount of derivative
deposits and the initial amount of ecess
reserve. If the initial excess reserves of Rs.
1000 creates total derivative deposits of Rs.
6000, then the credit multiplier is 6.
Credit multiplier= Total derivative deposits/
initial excess reserves
 Credit multiplier is the reciprocal of cash
reserve ratio.
52

Credit creation
The process of credit creation can be
analyzed in two ways:
 Credit creation by a single bank, and
credit creation by the banking system as
a whole.
 Credit creation by a single bank:
Suppose that CRR is 20% and a person
deposits in a bank Rs. 1000. Expanding
this case, we are developing an example
in the next slide.
53

Credit creation by a single bank
Rounds Primary
deposits
Cash
reserves
R=20%
Credit creation
or derivative
deposits (∆D)
1. Person (A)
2. Person (B)
3. Person (C)
4. Person (D)
---
---
Rs. 1000 IPD
Rs. 800
Rs. 640
Rs. 512
---
---
Rs. 200
Rs. 160
Rs. 128
Rs. 102
---
---
Rs. 800 IER
Rs. 640
Rs. 512
Rs. 410
----
---
Total 5000 1000 4000
54

Credit creation
The table shows the following points:
1. On the basis of the CRR of 20% and with
the initial primary deposit of Rs. 1000,
the bank creates derivative deposits (i.e.,
credit) of Rs. 4000 and the total demand
deposits will be Rs. 5000 (i.e. primary
plus derivative deposits).
2. The credit expansion (i,.e. Rs. 4000) is
five times the initial excess reserves (i.e.
Rs. 800).
3. The credit multiplier (k) will be 5. 55

Credit creation
The table shows the following points:
4. K=5000/1000=5, k=4000/800=5,
k=1/0.2=5
5. The additional aggregate deposits (∆D)
or the creation of derivative demand
deposits or the potential credit creation
will be the initial excess reserve (∆R)
multiplied by k or the inverse of CRR (r).
6. ∆D=k ∆R= ∆R/r
56

Credit creation by banking system
 In the real world there are many banks. While a
single bank can not lend beyond the amount of
excess reserves, the banking as a whole can
do what a single bank can not do.
 When a bank creates derivative deposits, it
loses cash to other banks. The loss of deposit
of one bank is the gain of deposit by some
other bank. This transfer of cash within the
banking system increases credit many more
times than the initial excess reserves, which is
called multiple credit creation.
57

Multiple credit creation by banking
system
Banks Primary
deposits
Cash
reserves
R=20%
Credit creation
or derivative
deposits (∆D)
1. Bank (A)
2. Bank (B)
3. Bank (C)
4. Bank (D)
---
---
Rs. 1000 IPD
Rs. 800
Rs. 640
Rs. 512
---
---
Rs. 200
Rs. 160
Rs. 128
Rs. 102
---
---
Rs. 800 IER
Rs. 640
Rs. 512
Rs. 410
----
---
Total 5000 1000 4000
58

Limitations of credit creation
1. Amount of cash: Higher the amount of
cash, higher is the credit creation. Thus,
the power to create credit is limited by
the bank’s cash.
2. CRR: the size of the CRR determines
credit creation. Higher CRR leads to
lower credit creation and vice versa.
3. Leakages: The actual credit creation by
the banking system may be less than the
potential because of certain leakages:
excess reserves and cash drains.
59

Limitations of credit creation
3. Leakages: If banks instead of granting loans
maintain excess reserves because of the fear
of recession or expectation of interest rate
hike, credit creation may be constrained.
Similarly, if people instead of depositing money
with bank hold currency with themselves, the
power of the bank to create credit is reduced.
4. Availability of borrowers and securities/collateral
5. Banking habit
6. Business condition
7. Monetary policy
60

Financial intermediaries (FIs)
 Financial intermediaries play an important role
in the economy. Remember the five roles of
FIs that we discussed earlier. FIs are
categorized into (a) depository institutions,
which accept deposits (b) non depository
institutions, which do not have deposit
liabilities.
 Depository institutions, which include
commercial banks, savings banks and savings
and loan associations, and credit unions. In
context of Nepal, Commercial banks,
development banks, finance companies are
main depository institutions. 61

 Non-depository institutions, which include securities
market institutions, insurance companies, pension
funds, mutual funds.
 Investment banks, and Securities brokers and dealers
are the securities market institutions.
 Investment banks specialize in securities underwriting.
Underwriting can be firm commitment underwriting
in which investment bank purchases and distributes to
dealers and other purchasers all securities offered by a
business and standby commitment underwriting in
which the investment bank earns commissions for
helping the issuing firm sell its securities under the
guarantee that the investment bank will purchase for
resale any initially unsold securities.
62

 Securities brokers specialize in matching
buyers and sellers in secondary financial
markets. Dealers, in contrast, sell securities
from their own portfolio and seek to profit by
buying low and selling high.
 Insurance companies offer policies that are
financial guarantees to cover losses of life and
property.
 Pension funds manage the retirement benefit
of the employees. These can be contributory or
non contributory. Contributory is one in which
both employers and employees contribute for
the retirement benefit of the latter. In
noncontributory, only employers contribute.
63

 Mutual funds are portfolios of financial
instruments managed by investment
companies on behalf of the shareholders.
These are subject to regulation. However,
hedge funds are private companies that
typically are operated as limited partnerships
subject to little or no government regulation.
64

Nepalese financial structure
Nepalese Financial Structure
(Rs. in million)
mi d-July 2006
Total
assets/liabilities
Percentage
share in
total
Ratio of total assets to
nomina l GDP
(in percentage)
Financi al
institutions
615761.4 88.4 105.6
Nepal Rastra
Bank
167606.8 24.1 28.8
Co mme rcia l
banks
387678.3 55.7 66.5
Finance
companies
38841.0 5.6 6.7
Develop ment
Banks*
10611.0 1.5 1.8
Cooperatives 2834.0 0.4 0.5
Microcredit
financia l
institutions
8190.4 1.2 1.4
Contr actual
Savings
institutions
80533.0 11.6 13.8
Emp loyees
Provident
Fund
51060.0 7.3 8.8
Citizen
Investment
Trust
6750.0 1.0 1.2
Insurance
companies
22688.0 3.3 3.9
Total 696294.4 100.0 119.4
No mina l GDP 582948
Ratio of stock
Market
capitalizitation
16.6
65

No. of NRB licensed FIs
Number of Institutions in mid-July
Type of Financial Institutions 1980 1985 1990 1995 2000 2005 2006 Jan-07
Commercial Banks 2 3 5 10 13 17 18 19
Development Banks 2 2 2 3 7 26 29 35
FinanceCompanies - - - 21 45 60 70 72
Micro Credit Development Banks - - - 4 7 11 11 11
Saving and Credit Cooperatives - - - 6 19 20 19 19
NGOs (Performing limited Banking
activities) - - - - 7 47 47 47
Source:NRB
66

Financial Institutions
 In addition to NRB licensed financial
institutions, there are 21 insurance
companies, one provident fund, one citizens
investment fund, Securities Board of Nepal,
Nepal Stock Exchange, Deposit Insurance
and Credit Guarantee Corporation, Postal
Saving Bank, and saving and credit
cooperatives licensed by Cooperatives
Department in Nepal.
67

Conclusion
Review:
1. What is money and what are its functions.
2. What is the role of banking system in an
economy?
3. What is credit creation?
4. What do FIs do?
68

chapter 5 - money and banking for BBA

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chapter 5 - money and banking for BBA