This document discusses key concepts related to the monetary system, including the functions of money, types of money, central banks, commercial banking, and monetary policy tools. Money serves as a medium of exchange, unit of account, and store of value. It can take the form of commodity or fiat currency. Commercial banks create money through fractional-reserve banking, using a reserve ratio and leverage to expand the money supply via the money multiplier effect. Central banks like SAMA use open market operations, interest rates, and reserve requirements to implement monetary policy and regulate the banking system.
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Rather than shy away from some of the more efficient non-core funding techniques, we believe it wise to make certain your Board and your Examiners understand what is being accomplished through the use of wholesale funding tactics and our third webinar on the ALCO Process is designed to describe an approach to this issue. We will provide guidance on:
1. Where to describe your strategy.
2. Limits to place on non-core funding.
3. Reporting the use of non-core funding.
4. Non-core funding products and services that are in use today.
5. Pros and Cons of these funding sources.
2. Key Terms
money
medium of exchange
unit of account
store of value
liquidity
commodity money
fiat money
currency
demand deposits
central bank
money supply
monetary policy
reserves
fractional-reserve banking
reserve ratio
money multiplier
bank capital
leverage
leverage ratio
capital requirement
open-market operations
discount rate
reserve requirements
!
35. Central Bank
The bank that oversees
the banking system and
regulates the money
supply in a country
36. Dr. Fahad Al Mubarak
!
Chairman of the Board
Governor
!
Saudi Arabia Monetary
Agency
SAMA
37.
38. Six Functions
• Issues national currency, the Saudi Riyal.
• Acts as a banker to the government.
• Supervises commercial banks.
• Manages Kingdom’s foreign exchange reserves.
• Conducts monetary policy for promoting
price and exchange rate stability.
• Promotes the growth and ensures the
soundness of the financial system.
53. Leverage
1. I have 10
2. I borrow 90 from you
3. I buy something for 100
4. I resell the item for 150
5. I pay back your 90
6. I keep the 60
7. I earned 50 profit on my 10
55. Bank Balance Sheet
Assets
Liabilities and
Owner Equity
Reserves 200 Deposits 800
Loans 700 Debt 150
Securities 100 Capital 50
Total 1000 Total 1000
Totals must balance or be equal
56. What is the leverage ratio?
Assets
Liabilities and
Owner Equity
Reserves 200 Deposits 950
Loans 800 Capital 50
Total 1000 Total 1000
Assets ÷ Capital
1000 ÷ 50 = 20
67. SAMA Official Repo Rate
Dropped from
5.5% October 2008
to 2.0% by January 2009
3 month period of
global financial crisis
Rate increased
as economy
heated up
72. The Meaning of Money
Three Functions of Money
Medium of Exchange
Unit of Account
Store ofValue
Two Kinds of Money
Commodity
Fiat
Money in the Economy
Currency
Demand Deposits
Central Banks
SAMA
Banks and the Money Supply
100-Percent Reserve Banking
Fractional-Reserve Banking
Reserve Ratio
Money Multiplier
Leverage
Capital Requirement
Tools of Monetary Control
Open-Market Operations
Discount Rate - ORR
Reserve Ratio
Bank Runs and Deposit Insurance