The document defines key terms related to money and banking such as banks, financial markets, monetary theory, inflation, interest rates, and balance sheets. It provides examples to illustrate bank balance sheets and how transactions impact reserves. The central bank plays an essential role as the lender of last resort, implements monetary policy, and controls credit and cash availability. The central bank uses tools like open market operations, reserve requirements, and interest rates to influence the money supply. Money functions as a medium of exchange, store of value, unit of account, and measure of value in an economy.
This document discusses the process of money creation by commercial banks. It begins with some assumptions, including that all transactions occur through banks and that banks must maintain legal reserve ratios like the CRR and SLR. It then provides an example to illustrate how money creation occurs in phases as initial deposits are lent out, repaid, and lent out again. With each round, total bank deposits and loans increase by 80% of the previous round. This process continues until total reserves match initial deposits. The money multiplier measures how many times the initial deposit can be "multiplied" as banks lend while maintaining required reserves.
Commercial banks accept deposits and provide loans to earn a profit from the interest rate spread. They create credit in the economy through the process of lending out deposits while maintaining required reserve ratios. The Reserve Bank of India uses various monetary policy tools like repo rates, cash reserve ratios, and statutory liquidity ratios to regulate money supply and credit creation in order to achieve economic objectives. It has established a monetary policy committee to decide interest rates, replacing the previous system of the RBI governor making decisions with input from the monetary policy department.
Commercial banks are able to create credit through a process of accepting deposits and lending out amounts in excess of the deposits received. They do this by keeping only a portion of deposits, like 10%, in reserve while lending out the rest. This allows the total credit created in the banking system to multiply based on the reserve ratio, like creating 10 times the initial deposit under a 10% reserve ratio. An example shows a $1000 deposit multiplying to $10,000 in total credit created across several banks each lending out most of the new deposits received.
Commercial banks are able to lend out and create much more money in the form of bank deposits than the amount of money they hold in reserves from customers. This process of credit creation allows banks to finance sectors of the economy and promote development. When a customer deposits cash in a bank, the bank can keep a portion as reserves and lend out the rest, allowing the borrower to make new deposits and the process to repeat across multiple banks in a multiplier effect, expanding the total money supply. However, credit creation is limited by factors like required reserve ratios, the amount of cash received, and monetary policies set by central banks.
Commercial banks engage in credit creation by using deposits as the source of loans. When a customer deposits money in a bank, the bank is required to keep a percentage as reserves but can loan out the rest. For example, if a customer deposits Rs. 1000 and the reserve ratio is 20%, the bank can loan Rs. 800. This loan may then be deposited in another bank, allowing further lending in a multiplying effect. The credit multiplier calculates this effect, with a 20% reserve ratio allowing deposits and loans to increase by a factor of 5 times the initial deposit through the banking system.
Banks engage in credit creation by lending out more money than they hold in deposits. They are able to do this through the process of credit multiplication. When a bank receives a deposit, it is only required to hold a portion, called the legal reserve requirement, as reserves. It can then lend out the remaining amount. When those loans are deposited in other banks, they become part of the money supply and more loans can be issued based on the new deposits. In this way, the initial deposit is multiplied across the banking system, allowing banks to collectively lend out much more money than the total of all deposits. Central banks control the money supply and flow of credit by setting the legal reserve requirement ratio.
- Banks act as financial intermediaries that accept deposits from savers and lend funds to borrowers. The main types of banks are central banks, commercial banks, and development banks.
- Commercial banks solicit deposits and use those funds to issue loans. Their main objective is profit-making. They accept various types of deposits like demand deposits, savings accounts, and fixed/time deposits.
- In addition to deposit and lending functions, commercial banks facilitate payments through instruments like checks, transfer funds, provide agency services, and offer other financial services. They also engage in credit creation by lending out deposits received, thereby expanding the money supply.
This document provides an overview and summary of Chapter 9 from Mishkin's textbook on money, banking, and financial markets. It discusses the key topics covered in the chapter, including:
1) How a bank's balance sheet lists sources of funds (liabilities) and uses of funds (assets).
2) How banks operate by obtaining deposits and using them to make loans, illustrated using T-accounts.
3) The four principles of bank management: liquidity management, asset management, liability management, and capital adequacy management.
This document discusses the process of money creation by commercial banks. It begins with some assumptions, including that all transactions occur through banks and that banks must maintain legal reserve ratios like the CRR and SLR. It then provides an example to illustrate how money creation occurs in phases as initial deposits are lent out, repaid, and lent out again. With each round, total bank deposits and loans increase by 80% of the previous round. This process continues until total reserves match initial deposits. The money multiplier measures how many times the initial deposit can be "multiplied" as banks lend while maintaining required reserves.
Commercial banks accept deposits and provide loans to earn a profit from the interest rate spread. They create credit in the economy through the process of lending out deposits while maintaining required reserve ratios. The Reserve Bank of India uses various monetary policy tools like repo rates, cash reserve ratios, and statutory liquidity ratios to regulate money supply and credit creation in order to achieve economic objectives. It has established a monetary policy committee to decide interest rates, replacing the previous system of the RBI governor making decisions with input from the monetary policy department.
Commercial banks are able to create credit through a process of accepting deposits and lending out amounts in excess of the deposits received. They do this by keeping only a portion of deposits, like 10%, in reserve while lending out the rest. This allows the total credit created in the banking system to multiply based on the reserve ratio, like creating 10 times the initial deposit under a 10% reserve ratio. An example shows a $1000 deposit multiplying to $10,000 in total credit created across several banks each lending out most of the new deposits received.
Commercial banks are able to lend out and create much more money in the form of bank deposits than the amount of money they hold in reserves from customers. This process of credit creation allows banks to finance sectors of the economy and promote development. When a customer deposits cash in a bank, the bank can keep a portion as reserves and lend out the rest, allowing the borrower to make new deposits and the process to repeat across multiple banks in a multiplier effect, expanding the total money supply. However, credit creation is limited by factors like required reserve ratios, the amount of cash received, and monetary policies set by central banks.
Commercial banks engage in credit creation by using deposits as the source of loans. When a customer deposits money in a bank, the bank is required to keep a percentage as reserves but can loan out the rest. For example, if a customer deposits Rs. 1000 and the reserve ratio is 20%, the bank can loan Rs. 800. This loan may then be deposited in another bank, allowing further lending in a multiplying effect. The credit multiplier calculates this effect, with a 20% reserve ratio allowing deposits and loans to increase by a factor of 5 times the initial deposit through the banking system.
Banks engage in credit creation by lending out more money than they hold in deposits. They are able to do this through the process of credit multiplication. When a bank receives a deposit, it is only required to hold a portion, called the legal reserve requirement, as reserves. It can then lend out the remaining amount. When those loans are deposited in other banks, they become part of the money supply and more loans can be issued based on the new deposits. In this way, the initial deposit is multiplied across the banking system, allowing banks to collectively lend out much more money than the total of all deposits. Central banks control the money supply and flow of credit by setting the legal reserve requirement ratio.
- Banks act as financial intermediaries that accept deposits from savers and lend funds to borrowers. The main types of banks are central banks, commercial banks, and development banks.
- Commercial banks solicit deposits and use those funds to issue loans. Their main objective is profit-making. They accept various types of deposits like demand deposits, savings accounts, and fixed/time deposits.
- In addition to deposit and lending functions, commercial banks facilitate payments through instruments like checks, transfer funds, provide agency services, and offer other financial services. They also engage in credit creation by lending out deposits received, thereby expanding the money supply.
This document provides an overview and summary of Chapter 9 from Mishkin's textbook on money, banking, and financial markets. It discusses the key topics covered in the chapter, including:
1) How a bank's balance sheet lists sources of funds (liabilities) and uses of funds (assets).
2) How banks operate by obtaining deposits and using them to make loans, illustrated using T-accounts.
3) The four principles of bank management: liquidity management, asset management, liability management, and capital adequacy management.
credit is very important for business and economy. growth of economy depends on credit creation. commercial banks play an important role in it. but if it is uncontrolled then it can create fluctuations in economy. it can bring inflation or recession in economy.
in this PPT how commercial banks distribute loan and how it is affected by various factors are explained.
This document discusses how banks create money through fractional reserve banking. It begins by explaining how goldsmiths in the 16th century issued receipts for gold deposits, which became used as money and allowed the goldsmiths to loan out more gold than they had in reserves. This established the concept of fractional reserve banking. It then discusses the functions of modern banks, including how they act as intermediaries between depositors and borrowers. The document also covers bank regulation implemented after the 1930s crisis, including deposit insurance, capital requirements, and reserve requirements, which help prevent bank runs.
The money multiplier is 1/required reserve ratio = 1/0.25 = 4
A $1,000 decrease in excess reserves by the Fed would cause a $4,000 decrease in the money supply based on the money multiplier formula. The answer is c.
Commercial banks are able to lend out more money than they hold in deposits through the process of credit creation. When a customer deposits money in a bank, the bank records this as a primary deposit and is able to lend out a portion of it, creating a derivative deposit. This process of lending out a portion of deposits and those loans subsequently being deposited can be repeated across multiple banks, allowing for the multiple expansion of credit throughout the banking system. However, banks must maintain minimum cash reserves and there are other factors that place limitations on the total amount of credit that can be created.
The document discusses credit creation by commercial banks. It explains that banks are able to generate money through lending deposits created from both primary deposits (customer cash deposits) and derivative deposits (deposits generated from loans). It provides an example to illustrate how a Rs. 1,000 primary deposit can generate over Rs. 2,000 in total banking system deposits and loans through the process of multiple expansion of credit. However, banks' ability to generate credit is limited by reserve requirements and other factors.
Lecture 4 commercial bank, cash reserve,credit creationHaadiAhsan
Commercial banks provide services like accepting deposits, making business loans, and offering investment products. They primarily accept deposits from customers and use those funds to issue loans. When customers deposit money, banks only keep a portion as reserves as required by law, usually 10%, and lend out the rest. This allows banks to create new deposits and expand the money supply through a multiplier effect. As deposits from one bank are deposited in other banks and those banks lend funds again, the amount of credit created can be several times the initial deposit through the process of multiple expansion.
Commercial banks have the ability to create credit through the process of lending deposits. When a bank grants a loan, it credits the borrower's account, creating new deposits. These derivative deposits can then be lent out again, resulting in multiple expansion of credit in the banking system. The initial deposit of Rs. 1,000 in Bank A resulted in total bank credit of Rs. 1,952 across three banks, demonstrating how one primary deposit can multiply into much higher credit amounts. However, banks' ability to create credit is limited by reserve requirements, economic conditions, and other factors controlled by the central bank.
The document discusses the roles and functions of central banks and commercial banks. It outlines that central banks serve as the regulator of currency, provide banking services to governments, act as custodians for commercial bank reserves, manage foreign exchange reserves, lend to other banks as the lender of last resort, facilitate clearing and settlement between banks, and control credit in the economy. Commercial banks accept deposits from the public, make loans with the deposits, provide overdraft facilities, discount bills of exchange, and perform agency functions like funds transfer and purchase/sale of securities.
The document summarizes the roles and functions of central banks and commercial banks. Central banks serve as the national bank that provides financial services to the government and regulates the commercial banking system. They act as the regulator of currency, banker and fiscal agent to the government, custodian of commercial bank reserves, manager of foreign exchange reserves, and lender of last resort. Commercial banks accept deposits from the public, provide loans, and perform secondary functions like overdraft facilities, bill discounting, and various agency services.
Commercial banks engage in credit creation by accepting deposits and issuing loans. When a bank grants a loan, it creates a new deposit for the borrower rather than providing cash. This allows banks to expand the money supply through the banking system. The ability of banks to create credit is based on assumptions like a constant reserve ratio and willingness of customers to borrow. However, credit creation is limited by factors such as the amount of cash deposits, required reserve ratios, and overall business conditions. Through this process, commercial banks play a key role in financing trade and investment for profit.
The document provides an overview of monetary systems, including the meaning of money, the Federal Reserve system, and how banks impact the money supply. It begins by defining money and describing its key functions. It then explains that the Federal Reserve is the central bank of the US and oversees monetary policy through tools like open market operations and reserve requirements. Banks expand the money supply through fractional reserve banking and the money multiplier effect. The document also notes challenges in controlling the money supply due to the independent actions of depositors and bankers.
The document provides an overview of various topics in banking including:
1. It introduces retail banking, corporate banking, investment banking and private banking and the various services offered under each.
2. It discusses key banking terminology like CASA (current and savings accounts), time deposits, loans, remittances and non-branch delivery channels.
3. It covers banking principles, regulations, accounting practices, lending, types of accounts, and legal and regulatory aspects of banking.
The document discusses various topics related to banking in India including:
1) It defines banking and describes the key roles of commercial banks in accepting deposits and providing loans.
2) It outlines the four main types of banks - commercial banks, cooperative banks, specialized banks, and central banks.
3) It explains some of the key functions of central banks like being the banker to the government and controlling money supply through tools like repo rates and open market operations.
The document discusses various types of bank deposit accounts and services, and poses problems related to banking transactions.
1. A customer lost a fixed deposit receipt and approaches the bank manager for assistance in redeeming the deposit.
2. A joint fixed deposit was issued to X and Y, and now X wants to redeem after one year or take a loan using the deposit as collateral.
3. A joint current account was held by Ram and Raj payable to either survivor, and now the bank must determine how to handle a cheque presented for payment after Raj's death.
Essentials of a sound banking system- Nelson FernandesNelson Fernandes
A sound banking system has several essential elements according to the document. It must maintain liquidity by keeping some assets easily convertible to cash to meet depositor demands. It must ensure safety by making secure loans and investments to avoid risks to depositor funds. It needs stability by rationally expanding and contracting credit according to economic conditions without booms and inflation. It requires elasticity to adjust lending while following central bank directives. And it must earn profits through prudent policies to remain viable and pay expenses.
Bank deposits provide a key source of low-cost funds for banks and come in several types:
Demand deposits like savings accounts that allow withdrawals on demand and earn interest; term deposits for fixed periods that pay higher interest but may charge penalties for early withdrawal; and hybrid/flexi deposits that automatically shift surplus funds into term deposits. Deposits serve various purposes for account holders and banks aim to lend deposits at higher returns to earn a profit. Accounts also exist for non-residents in foreign currencies or rupees.
Bank deposits, nominations and deposit insuranceGaurav Mishra
Deposits are a key source of low-cost funds for banks and are profitable as banks can lend these funds and earn a higher return. There are various types of deposits including demand deposits like savings and current accounts, term deposits for fixed periods, and non-resident accounts for NRIs. Banks offer benefits to customers like a safe place to park funds, earning interest, and payment/withdrawal abilities. Joint accounts and nominations are also discussed.
The document defines banking business and banks according to Malaysian law. Under the Banking and Financial Institutions Act of 1989, a bank is defined as an entity that carries out banking business, which includes receiving deposits, paying/collecting checks, and providing financing such as lending money, leasing, and purchasing financial instruments. Banks play roles like promoting savings and reasonable interest rates. They provide services like deposits, loans, remittances, and more. Regulations require banks to maintain reserves to control liquidity and credit levels.
Money takes the form of either commodity money (with intrinsic value like gold) or fiat money (without intrinsic value established by government decree). Money serves three functions as a medium of exchange, unit of account, and store of value. The money supply includes M1 (currency and checkable deposits) and broader M2 (M1 plus savings deposits and money market funds). When the central bank increases reserves, the banking system can expand deposits by making loans, multiplying the initial change in reserves through the deposit multiplier.
unit 2 (3).pptx money and banking notes notesbrianmfula2021
The document discusses general principles of bank management including:
- The bank balance sheet lists assets and liabilities, with total assets equaling total liabilities plus capital.
- Banks manage liquidity, asset risk, liability costs, and capital adequacy. They obtain funds through liabilities like deposits and use these funds to acquire income-generating assets like loans and securities. Banks make profits if interest earned on assets exceeds costs of liabilities.
credit is very important for business and economy. growth of economy depends on credit creation. commercial banks play an important role in it. but if it is uncontrolled then it can create fluctuations in economy. it can bring inflation or recession in economy.
in this PPT how commercial banks distribute loan and how it is affected by various factors are explained.
This document discusses how banks create money through fractional reserve banking. It begins by explaining how goldsmiths in the 16th century issued receipts for gold deposits, which became used as money and allowed the goldsmiths to loan out more gold than they had in reserves. This established the concept of fractional reserve banking. It then discusses the functions of modern banks, including how they act as intermediaries between depositors and borrowers. The document also covers bank regulation implemented after the 1930s crisis, including deposit insurance, capital requirements, and reserve requirements, which help prevent bank runs.
The money multiplier is 1/required reserve ratio = 1/0.25 = 4
A $1,000 decrease in excess reserves by the Fed would cause a $4,000 decrease in the money supply based on the money multiplier formula. The answer is c.
Commercial banks are able to lend out more money than they hold in deposits through the process of credit creation. When a customer deposits money in a bank, the bank records this as a primary deposit and is able to lend out a portion of it, creating a derivative deposit. This process of lending out a portion of deposits and those loans subsequently being deposited can be repeated across multiple banks, allowing for the multiple expansion of credit throughout the banking system. However, banks must maintain minimum cash reserves and there are other factors that place limitations on the total amount of credit that can be created.
The document discusses credit creation by commercial banks. It explains that banks are able to generate money through lending deposits created from both primary deposits (customer cash deposits) and derivative deposits (deposits generated from loans). It provides an example to illustrate how a Rs. 1,000 primary deposit can generate over Rs. 2,000 in total banking system deposits and loans through the process of multiple expansion of credit. However, banks' ability to generate credit is limited by reserve requirements and other factors.
Lecture 4 commercial bank, cash reserve,credit creationHaadiAhsan
Commercial banks provide services like accepting deposits, making business loans, and offering investment products. They primarily accept deposits from customers and use those funds to issue loans. When customers deposit money, banks only keep a portion as reserves as required by law, usually 10%, and lend out the rest. This allows banks to create new deposits and expand the money supply through a multiplier effect. As deposits from one bank are deposited in other banks and those banks lend funds again, the amount of credit created can be several times the initial deposit through the process of multiple expansion.
Commercial banks have the ability to create credit through the process of lending deposits. When a bank grants a loan, it credits the borrower's account, creating new deposits. These derivative deposits can then be lent out again, resulting in multiple expansion of credit in the banking system. The initial deposit of Rs. 1,000 in Bank A resulted in total bank credit of Rs. 1,952 across three banks, demonstrating how one primary deposit can multiply into much higher credit amounts. However, banks' ability to create credit is limited by reserve requirements, economic conditions, and other factors controlled by the central bank.
The document discusses the roles and functions of central banks and commercial banks. It outlines that central banks serve as the regulator of currency, provide banking services to governments, act as custodians for commercial bank reserves, manage foreign exchange reserves, lend to other banks as the lender of last resort, facilitate clearing and settlement between banks, and control credit in the economy. Commercial banks accept deposits from the public, make loans with the deposits, provide overdraft facilities, discount bills of exchange, and perform agency functions like funds transfer and purchase/sale of securities.
The document summarizes the roles and functions of central banks and commercial banks. Central banks serve as the national bank that provides financial services to the government and regulates the commercial banking system. They act as the regulator of currency, banker and fiscal agent to the government, custodian of commercial bank reserves, manager of foreign exchange reserves, and lender of last resort. Commercial banks accept deposits from the public, provide loans, and perform secondary functions like overdraft facilities, bill discounting, and various agency services.
Commercial banks engage in credit creation by accepting deposits and issuing loans. When a bank grants a loan, it creates a new deposit for the borrower rather than providing cash. This allows banks to expand the money supply through the banking system. The ability of banks to create credit is based on assumptions like a constant reserve ratio and willingness of customers to borrow. However, credit creation is limited by factors such as the amount of cash deposits, required reserve ratios, and overall business conditions. Through this process, commercial banks play a key role in financing trade and investment for profit.
The document provides an overview of monetary systems, including the meaning of money, the Federal Reserve system, and how banks impact the money supply. It begins by defining money and describing its key functions. It then explains that the Federal Reserve is the central bank of the US and oversees monetary policy through tools like open market operations and reserve requirements. Banks expand the money supply through fractional reserve banking and the money multiplier effect. The document also notes challenges in controlling the money supply due to the independent actions of depositors and bankers.
The document provides an overview of various topics in banking including:
1. It introduces retail banking, corporate banking, investment banking and private banking and the various services offered under each.
2. It discusses key banking terminology like CASA (current and savings accounts), time deposits, loans, remittances and non-branch delivery channels.
3. It covers banking principles, regulations, accounting practices, lending, types of accounts, and legal and regulatory aspects of banking.
The document discusses various topics related to banking in India including:
1) It defines banking and describes the key roles of commercial banks in accepting deposits and providing loans.
2) It outlines the four main types of banks - commercial banks, cooperative banks, specialized banks, and central banks.
3) It explains some of the key functions of central banks like being the banker to the government and controlling money supply through tools like repo rates and open market operations.
The document discusses various types of bank deposit accounts and services, and poses problems related to banking transactions.
1. A customer lost a fixed deposit receipt and approaches the bank manager for assistance in redeeming the deposit.
2. A joint fixed deposit was issued to X and Y, and now X wants to redeem after one year or take a loan using the deposit as collateral.
3. A joint current account was held by Ram and Raj payable to either survivor, and now the bank must determine how to handle a cheque presented for payment after Raj's death.
Essentials of a sound banking system- Nelson FernandesNelson Fernandes
A sound banking system has several essential elements according to the document. It must maintain liquidity by keeping some assets easily convertible to cash to meet depositor demands. It must ensure safety by making secure loans and investments to avoid risks to depositor funds. It needs stability by rationally expanding and contracting credit according to economic conditions without booms and inflation. It requires elasticity to adjust lending while following central bank directives. And it must earn profits through prudent policies to remain viable and pay expenses.
Bank deposits provide a key source of low-cost funds for banks and come in several types:
Demand deposits like savings accounts that allow withdrawals on demand and earn interest; term deposits for fixed periods that pay higher interest but may charge penalties for early withdrawal; and hybrid/flexi deposits that automatically shift surplus funds into term deposits. Deposits serve various purposes for account holders and banks aim to lend deposits at higher returns to earn a profit. Accounts also exist for non-residents in foreign currencies or rupees.
Bank deposits, nominations and deposit insuranceGaurav Mishra
Deposits are a key source of low-cost funds for banks and are profitable as banks can lend these funds and earn a higher return. There are various types of deposits including demand deposits like savings and current accounts, term deposits for fixed periods, and non-resident accounts for NRIs. Banks offer benefits to customers like a safe place to park funds, earning interest, and payment/withdrawal abilities. Joint accounts and nominations are also discussed.
The document defines banking business and banks according to Malaysian law. Under the Banking and Financial Institutions Act of 1989, a bank is defined as an entity that carries out banking business, which includes receiving deposits, paying/collecting checks, and providing financing such as lending money, leasing, and purchasing financial instruments. Banks play roles like promoting savings and reasonable interest rates. They provide services like deposits, loans, remittances, and more. Regulations require banks to maintain reserves to control liquidity and credit levels.
Money takes the form of either commodity money (with intrinsic value like gold) or fiat money (without intrinsic value established by government decree). Money serves three functions as a medium of exchange, unit of account, and store of value. The money supply includes M1 (currency and checkable deposits) and broader M2 (M1 plus savings deposits and money market funds). When the central bank increases reserves, the banking system can expand deposits by making loans, multiplying the initial change in reserves through the deposit multiplier.
unit 2 (3).pptx money and banking notes notesbrianmfula2021
The document discusses general principles of bank management including:
- The bank balance sheet lists assets and liabilities, with total assets equaling total liabilities plus capital.
- Banks manage liquidity, asset risk, liability costs, and capital adequacy. They obtain funds through liabilities like deposits and use these funds to acquire income-generating assets like loans and securities. Banks make profits if interest earned on assets exceeds costs of liabilities.
The document discusses the monetary system in India. It defines money and its functions. It explains the different measures of money supply in India and the role of the Reserve Bank of India in managing the monetary system. It discusses how banks create money through fractional-reserve banking and the money multiplier effect. It also outlines the instruments used by RBI to control money supply such as bank rate, CRR, SLR etc.
The financial system coordinates saving and investment by connecting savers who supply funds with borrowers who demand funds. Financial markets like stock and bond markets allow direct investment, while financial intermediaries like banks indirectly channel funds. Banks accept deposits from savers and lend to borrowers, paying savers interest and charging borrowers a higher rate. Central banks create money by printing currency and regulating commercial banks, which create money through fractional reserve banking by lending out deposits while keeping reserves. Commercial bank balance sheets show assets like reserves and loans against liabilities like deposits.
Money supply is determined by the central bank and commercial banking network. It impacts macroeconomic conditions and interest rates. There are four measures of money supply but M3, which includes time deposits and savings deposits, is most widely used. Factors like bank credit, government spending, and foreign exchange reserves can increase money supply. While central banks can print money, uncontrolled printing will devalue the currency. Commercial banks create credit through the deposit multiplier process, where an initial deposit can expand into multiple new deposits through a series of loans and redeposits, limited by reserve requirements.
Banking and management of financial institutionsOnline
The document discusses various aspects of commercial bank financial management, including analyzing a bank's balance sheet with assets like loans and reserves on the left and liabilities like deposits on the right, how banks engage in asset transformation by borrowing short-term via deposits and lending long-term, and the goals of liquidity, asset, liability, and capital management to maximize profits while minimizing risks.
This document defines key concepts related to money, money supply, and banking in India. It discusses that money supply refers to the total stock of money held by the public at a given time, and includes currency and demand deposits. The central bank of India, called the Reserve Bank of India (RBI), acts as the banker, lender of last resort, and regulator of other commercial banks. It controls money supply through various instruments like bank rate, cash reserve ratio, and open market operations. Commercial banks accept deposits and provide loans, creating money through demand deposits, while the RBI issues currency and oversees the banking system.
Bank management-general-principles-primary-concerns-of-the4512Ganesh Shinde
The document discusses the primary concerns and responsibilities of bank managers. It states that bank managers must ensure deposit inflows match outflows through liquidity management. They must also keep risk levels low through asset management and maintain adequate capital levels as required by regulators. The document then goes into further detail about how bank managers engage in liquidity management, asset management, liability management, and capital adequacy management to address these primary concerns. It discusses various methods and indicators used to evaluate liquidity needs and risks. Maintaining sufficient reserves and capital is important to prevent bank failure during unexpected events.
Money is important for facilitating exchange without barter. It serves as a medium of exchange, unit of account, and store of value. There are two types of money: commodity money which has intrinsic value, and fiat money which derives value by government decree. The money supply includes currency and demand deposits. Central banks use tools like open market operations, reserve requirements, and interest rates to influence the money supply through changes in bank reserves or the money multiplier. Fractional reserve banking allows banks to lend out most deposits, multiplying the original money supply. However, this system is vulnerable to runs if depositors lose confidence in banks.
1. Banks create money through the fractional reserve banking system by accepting deposits and making loans. When a bank makes a loan, it credits the borrower's account, increasing the overall money supply.
2. A single commercial bank can multiply the amount of money it creates through the process of accepting deposits and making loans. As more people deposit money and banks continue to loan out deposits, the money supply expands.
3. The money creation process occurs as banks build on one another's actions. When one bank makes a loan, those funds may be deposited in another bank, allowing the second bank to make additional loans and further increasing the money supply through the banking system.
1. A financial system consists of institutions, instruments, and markets that foster savings and channel them to their most efficient uses. It mobilizes and allocates savings, monitors corporate performance, provides payment and settlement systems, and offers diversified investment opportunities.
2. Capital formation involves diverting productive capacity toward making capital goods that increase future productivity. It requires increased savings through various means and the mobilization and investment of those savings through money and capital markets.
3. Banks play a key role in capital formation by accepting deposits and using fractional reserve banking to multiply the money supply through lending, stimulating further economic activity.
This document discusses the diversity of banking institutions, including commercial banks, central banks, and specialized banks. It provides details on the key characteristics and functions of each type of bank. Commercial banks accept deposits and make loans to be profitable. Central banks direct monetary policy, regulate other banks, and act on behalf of the government. Specialized banks focus on specific economic sectors like agriculture, real estate, or industry through long-term financing and direct investment. Together these different bank types work to support economic development through the provision of various financial services.
The document provides an overview of banking and central banking. It defines a bank as a financial institution that accepts deposits and makes loans. A central bank is responsible for monetary policy and regulating other banks. It has several key roles, including issuing currency, acting as a bank for the government, overseeing the banking system, controlling money supply and credit, managing foreign exchange, acting as a lender of last resort, collecting banking data, and facilitating check clearing between banks. The central bank uses various tools for monetary policy including adjusting interest rates, conducting open market operations, changing reserve requirements, and employing moral suasion or direct actions with other banks.
Central Bank is the head of a country's banking and monetary system. It aims to control the banking system and support government economic policy, rather than focus on profits like commercial banks. The central bank has several key functions:
1) It has the sole right to issue banknotes and regulates the money supply.
2) It acts as a bank, agent, and adviser to the government. It manages government accounts and provides short-term loans.
3) It oversees commercial banks, holding their reserves and providing credit in times of need.
4) It works to establish price and exchange rate stability through tools like interest rates, open market operations, and reserve requirements.
The central bank also
This document provides an overview of banking services in India. It begins with definitions of banking as per Indian law and a brief history of banking in India. It then discusses the different types of scheduled commercial banks in India and provides an overview of their structure and functions. The document also covers key banking concepts like asset liability management, risk exposures banks face, Islamic banking, bank performance metrics, and the shadow banking system.
Chapter_2_Overview of Commercial Banks_2022.pptxShetuBiswas3
This document provides an overview of commercial banks, including their definition, functions, and trends affecting them. It defines commercial banks as financial institutions that accept deposits and use those deposits to grant loans and offer other financial services. The key functions of commercial banks are described as primary functions like receiving deposits and advancing loans, agency functions like payment services, and general utility functions like letters of credit. The document also discusses credit creation by commercial banks and the credit multiplier effect. It concludes with a brief mention of trends affecting commercial banks.
This document discusses various topics related to cash handling and accounting. It defines different forms of business organization, types of businesses, and types of cash. It also describes cash accounts, bank products, government securities, and ratios used for cash flow analysis. The document outlines functions and positions involved in cash handling, including collectors, cashiers, accountants, and internal auditors. It provides policies and procedures for cash management.
The document provides information about economics, banking functions, and financial markets. It discusses:
1) The evolution of economics from its origins in political economy to its current definition as a science dealing with allocation of scarce resources. It also discusses microeconomics and macroeconomics.
2) The key functions of commercial banks which include accepting deposits and granting loans. It explains various types of bank accounts and loans.
3) Financial markets which have a capital market including stock exchanges, and a money market for short term debt instruments.
This document provides information about the services provided by commercial banks to individuals, institutions, and globally. It discusses individual banking services like deposits, loans, and financial services. It also outlines institutional banking services like commercial real estate financing and cash management. Global banking involves corporate financing, capital markets, and foreign exchange. The document then discusses bank funding sources like deposits and borrowing. It explains the calculation of core capital, supplementary capital, total capital, and risk-weighted exposures for determining a bank's capital adequacy ratio.
STUDY ON THE DEVELOPMENT STRATEGY OF HUZHOU TOURISMAJHSSR Journal
ABSTRACT: Huzhou has rich tourism resources, as early as a considerable development since the reform and
opening up, especially in recent years, Huzhou tourism has ushered in a new period of development
opportunities. At present, Huzhou tourism has become one of the most characteristic tourist cities on the East
China tourism line. With the development of Huzhou City, the tourism industry has been further improved, and
the tourism degree of the whole city has further increased the transformation and upgrading of the tourism
industry. However, the development of tourism in Huzhou City still lags far behind the tourism development of
major cities in East China. This round of research mainly analyzes the current development of tourism in
Huzhou City, on the basis of analyzing the specific situation, pointed out that the current development of
Huzhou tourism problems, and then analyzes these problems one by one, and put forward some specific
solutions, so as to promote the further rapid development of tourism in Huzhou City.
KEYWORDS:Huzhou; Travel; Development
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Transportation_Channel_Investor_Presentation_April_2024_ Final .pdf
Final revision
1. Final Revision
Money & Banking
Question 1: Define the following terms:
1- Banks:
Banks are financial institutions that accept
deposits and make loans.
2- Financial Markets:
Markets in which funds are transferred from
people who have an excess of available funds to
people who have a shortage.
3- Monetary theory:
The theory that relates the change in the
quantity of money to changes in aggregate
economic activity & the price level.
4- Inflation:
Is the continuous increase in the price level of
goods & services in an economy.
5- Interest rate:
Is the cost of borrowing (or the return from
lending.
2. 6- Current account:
A current account is an account in which money or
checks can be taken out or payments can be made
at any time.
7- Deposit accounts:
These earn an interest, since the customers are not
expected to make frequent withdrawals, and should
give notice in advance.
8- The balance sheet:
Is a statement of banks assets, liabilities , and net
worth at a given point in time.
9- Reserves
Are either bank deposits held at the central bank, or
currency that is physically held by banks
10- Required reserves : a certain fraction of deposits
must be held as reserves by law
11- Excess reserves: used by a bank to meet obligations
to depositors.
3. 12- Adverse selection
Is the problem created by asymmetric information
before the transaction occurs.
13- Moral hazard is a problem of asymmetric
information occurring after a loan is made.
Example:
Suppose that John Brown has heard that the first
National Bank provides excellent service, so he opens
a checking account with 100 $
He now has a 100$ checkable deposit at the bank,
which shows up as a 100$ liability on the bank’s
balance sheet
The bank now puts his 100$ into its vault so that the
bank’s assets rise by the 100$ increase in vault cash.
Assets
Reserves 100$
liabilities
checkable deposits 100$
4. If john had opened his account with a 100$ check
written on an account at another bank, say the second
National Bank, we would get the same result. The
initial effect on the T-account of the first National
Bank as follows
Assets
Liabilities
cash item in 100$
checkable deposits 100$
process of collection
The final balance sheet positions of two banks are as
follows:
First National Bank
Assets
Reserves
100$
Liabilities
checkable deposits
100$
second National Bank
Assets
Reserves - 100$
liabilities
checkable deposits -100
5. The process can be summarized as follows: when a
check written on an account at one bank is deposited
in another, the bank receiving the deposit gains
reserves equal to the amount of the check, while the
bank on which the check is written sees its reserves
fall by the same amount .
Example:
Suppose that the first National bank has the following balance
sheet position, and the required reserve ratio on deposits is 20%
Assets
Reserves
Liabilities
25 m
Loans
75
Securities
Deposits
100 m
Bank capital 10
10
1) If the bank suffers a deposit outflow of 6 million,
what will its balance sheet now look like?. Must
the bank make any adjustment in its balance
sheet? Why?
2) Suppose the bank now is hit by another 4 million
deposits outflow. What will its balance sheet
position look like now? Must the bank make any
adjustment in its balance sheet? Why?
6. 3) If the bank satisfies its reserve requirements by
selling of securities, how much will it have to
sell? Why?
4) After selling off the securities to meet its reserve
requirement , what will its balance sheet look
like?
5) If after selling off the securities the bank is now
hit by another 10 million withdrawals of deposits,
and it sells off all its securities to obtain reserves,
what will its balance sheet look like?
6) If the bank is now unable to call in or sell any of
its loans and no one is willing to lend funds to this
bank, then what will happen to the bank and why?
Answer:
1) Assets
Liabilities
Reserves
19 m
deposits
94 m
loans
75
Bank capital 10
securities
10
7. The answer is no because the bank still satisfy its reserve
requirement (94 * 20%)
2)
Assets
Liabilities
Reserves
15 m
loans
75
securities
deposits
90 m
10
Bank capital 10
The answer is yes because the bank must make an
adjustment to its balance sheet, because its required
reserve are 18 million. It has a reserve deficiency of 3
million
3)That bank will have to sell 3 million . As the bank
has a reserve shortfall of 3 million, which it can
acquire by selling the 3 million of securities
4)
Assets
Liabilities
Reserves
18m
loans
75
securities
7
deposits
90 m
Bank capital 10
8. 5)
Assets
Liabilities
Reserves
15m
loans
75
securities
0
6-
deposits
80m
Bank capital 10
The bank could fail. The required reserves for
the bank are 16 million (20% of 80 million) , but
it has 15 million of reserve.
Example:
Suppose that you are the manager of a bank that has the
following balance sheet; with a required reserve ratio of
10%.
Assets
Liabilities
Reserves 20 m
Deposits
100 m
Loans
80
Bank capital 10
Securities
10
1) If the bank suffers a deposit outflow of 10 m ,
what will its balance sheet? Why?
9. 2)
Let's assume that instead of initially holding
10m in excess reserves, the bank makes loans of
10m, so that it holds no excess reserves. What
will its balance sheet position look like now?
3)
Suppose the bank now is hit by another 10 m
deposit outflow. What will its balance sheet
position look like now? Must the bank make
any adjustment in its balance sheet? Why?
Answer:
1)
The required reserve = 10% * 100= 10m
The bank has excess reserves of 10m. when a
deposit outflow of 10m occurs, the bank's balance
sheet becomes.
Assets
Liabilities
Reserves 10 m
Deposits
90 m
Loans
80
Bank capital 10
Securities
10
10. The answer is no because the bank still satisfy its
reserve requirement
2)
The initial balance sheet would be:
Assets
Liabilities
Reserves 10 m
Loans
90
Bank capital 10
Securities
3)
Deposits
100 m
10
When the bank suffers the 10 m deposits outflow, its
balance sheet becomes:
Assets
Liabilities
Reserves 0 m
Loans
90
Securities
Deposits
90 m
Bank capital 10
10
To eliminate this shortfall, the bank has four basic
options:
11. a)the first option is to sell some of its securities.
Assets
Liabilities
Reserves 9 m
Deposits
90 m
Loans
90
Bank capital 10
Securities
1
a) The second option is borrowing from other banks or
borrowing from corporations
Assets
Reserves 9 m
Loans
90
Securities 10
Liabilities
Deposits
90 m
borrowing from
Other banks
9
Bank capital 10
c)the third option is borrowing from the central bank
Assets
Liabilities
Reserves 9 m
Loans
90
Securities 10
Deposits
90 m
discount loans
from the CB
9
Bank capital 10
12. d)Finally, reducing its loans by this amount
Assets
Liabilities
Reserves 9 m
Loans
81
Deposits
90 m
bank capital 10
Securities 10
When a deposit outflow occurs holding excess reserves
allows the bank to escape the costs of:
1)borrowing from other banks or corporations
2)borrowing from the CB
3) selling securities
4)calling in or selling off loans.
Because excess reserves have a cost, banks also take other
steps to protect themselves: for example, they might shift
the holding of assets to more liquid securities (secondary
Reserves)
Example:
Let ‘s consider two banks with identical balance sheets,
except that the High Capital Bank has a ratio of capital to
assets of 10%, while the Low Capital Bank has a ratio of
4%.
13. High capital Bank
Assets
Liabilities
Reserves
10m
deposits
90 m
loans
90
Bank capital 10
Low capital Bank:
Assets
Liabilities
Reserves
10m
loans
90
deposits
96m
Bank capital 4
- The high capital bank has 100 million of assets, and
10 million of capital, which gives it an equity
multiplier of 10 (100/10)
• The low capital bank has only 4 million of capital ,
so its equity multiplier is higher , equaling 25
(100/4)
• Suppose that these banks have been equally well run
so that they both have the same return on assets 1%
14. • The return on equity for the high capital bank equals
1% * 10= 10% while
• The return on equity for the low capital bank equals
1%*25= 25%
We now see why owners of a bank may not want it
to hold too much capital.
Question 3: Discuss
AThere are four players in the Money Supply
Process. Explain.
Answer:
(1) The central Bank:
The government agency that oversees the banking
system , and is responsible for the conduct of monetary
policy.
(2) Banks (Depository Institutions):
The financial Intermediaries that accept deposits from
individuals & institutions and make loans.
(3) Depositors:
Individuals and institutions that hold deposits in banks.
15. (4) Borrowers from banks:
Individuals and institutions that borrow from the
depository Institutions , and institutions that issue bonds
that are purchased by the Depository Institutions.
B- Examine the essential role of the central bank in
an economy.
Answer:
(1) Lender of the last Resort:
the central bank is the provider of reserves to financial
institutions. When no else would provide them in order
to prevent a financial crisis.
(2) Government Banker:
- It is responsible for implementing government
monetary policy , which aims at controlling the amount
of money in circulation (to control the inflation rate)
- It has the important job of controlling foreign
exchange
(3) A Banker’s Bank:
- The central bank holds deposits made by commercial
banks, which appear in its balance sheet in the liability
side( appear in the balance sheet of commercial banks
in the asset side)
16. - Control of credit and cash available to the public
CThe central bank interferes in the market
through specific tools. Elaborate
Answer:
Tools of Monetary Policy:
First: the three major tools of Monetary policy
(1)
Open market operations
(2)
Setting reserves requirements for commercial
banks and other depository institutions
(3)
Setting the level of the discount rate
(1) Open market operations:
• The central bank can directly affect the amount of
bank reserves by buying or selling government
securities ( stock, bonds) , in the open market where
these securities are traded. Such transactions are
called open market operations
• When the central bank conducts open market
purchases, it buys government bonds and puts
reserves into the banking system, causing an
expansion of demand deposits and other checkable
deposits, and hence an increase in the economy’s
money supply
17. • When the central bank conducts open market sales ,
it sells government bonds and takes reserves out of
the banking system, causing a contraction of
demand deposits and other checkable deposits, and
hence a decrease in the economy’s money supply
(2) Legal Reserves Requirements:
The central bank has the authority to set the
required reserve ratios within limits.
(A) Increase in the legal Reserves Requirement
• Suppose that the central bank wants to tighten up
the economy’s money supply, this means that the
central bank wants to force the banks in the banking
system to reduce their lending activity or their
holdings of other earnings.
(B) Decrease in the legal Reserves Requirement
• If the central bank wants to increase the money
supply, it can reduce the reserves requirement.
• In general, we can say that an increase in the
required reserve ratio will force a money supply
reduction. A decrease in the required reserve ratio
increase the amount of excess reserves, encouraging
banks to increase lending and deposit expansion,
thereby increasing the money supply.
18. (3) Setting the Discount Rate:
• The depository institutions make loans to the public,
and the central banks make loans to depository
institutions.
• Banks naturally find it attractive to borrow from the
central bank, whenever the interest rates they can
earn from making loans to business and consumers
or by purchasing securities, are greater than the
discount rate.
• On the other hand, when the discount rate is higher
than these interest rates, banks are discourage from
borrowing at the central bank.
• In general, we can say that if the central bank raises
the discount rate, bank borrowing is reduced, and
the amount of reserves in the banking system falls .
this tends to deposit contraction, and a reduction in
the size of the money supply
• If the central bank lowers the discount rate, bank
borrowing rises, causing an increase in reserves and
deposit expansion and hence an increase in the
money supply.
D-
Differentiate between stocks & Bonds
19. E- Explain briefly the functions of money.
Answer:
1- Medium of Exchange.
Money in the form of currency or checks is a
medium of exchange. It is used to pay for goods and
services.
If there were no money, goods would have to be
exchanged by barter.
• For a commodity to function effectively as money,
it as to meet several criteria:
1- it must be widely accepted
2- it must be divisible
3- it must be easy to carry
20. 4- it must not deteriorate quickly.
2- Measure of value
It is used to measure value in the economy. We
measure the value of goods and services in terms
of money.
Using money as a unit of account reduces
transaction costs in an economy by reducing the
number of prices that need to be considered.
3- store of value
People usually save in the form of money.
However, this function of money depends on its
stability of value. If money loses its stability of
value, people tend to save in the form of buying
assets.
4- Unit of Account
In both households and businesses, it is necessary to
look a head and calculate future income and
expenditure. Money, acting as a unit of account, can
serve these purposes.