2. Money
Money is anything that is
generally acceptable as a means of
exchange and at the same time, act
as a store of value.
3. Money
Legal Definition :- Money is anything
declared by law as money
Functional Definition :- Money is
anything that acts as a medium of
exchange, measure of value, store of
value and standard for deferred
payments
6. Barter Economy
Barter economy can be termed as
C-C economy i.e., Commodity for
Commodity economy.
7. Difficulties of Barter System
Lack of Double Coincidence
Lack of divisibility
Lack of Common measure
Difficulty of Storage and Transfer of
Wealth
Difficulty in deferred payment
Difficulty in the exchange of services
8. Why we need money?
Robinson-Crusoe Economy: autarky,
do not need money
Robinson + Friday: need exchange,
barter economy
Barter economy has a drawback:
“double coincidence of wants”
9. Why we need money?
Introduce money greases the wheel
of exchange and make the whole
economy more productive
With money, market does not need to
be “personal,” the extent of exchange is
greatly increased
10. The Functions of Money
Money
Medium of exchange
Standard object - exchange goods &
services
Unit of account
Standard unit – quoting prices
Store of value
Store wealth
11. What serves as money?
For a money, we need it
Divisible
Identical (uniform)
Storable and durable
Compact (easy to carry): high value per
unit of volume or weight
Candidate: gold, silver, copper, …
13. What serves as money?
Paper is even better…
First paper money, 11th century
in China
Bank notes carried a guarantee that
it could be traded at any time
for coin age
14. What serves as money?
Decreed as money by government
Little value as commodity
Maintains value - medium of exchange
because people have faith that the issuer
will stand behind it
15. Fiat Money
It refers to money by order
/authority of the government. It
includes Notes And Coins.
16. Fiduciary Money
It refers to money backed up by
trust between the payer and payee.
17. Money Supplier
In the Modern times the source of
supply of money are government,
central bank of the country and
commercial bank.
18. It Includes currency (R) with the public
and cash(c) reserves with bank. High
Powered money=R+C.
High Powered Money
19. How Quantity of Money is
Measured
Asset’s liquidity
Ease – convert into cash
Credit cards
Not included in money supply
Convention: Money only includes
Coins
Paper money
Checkable deposits
20. Banking
Banking implies accepting deposits of
money from the public for the purpose
of lending or investment which is
repayable on demand and can be
withdrawn by means of cheques, draft
order etc.
21. Commercial Bank
A Commercial Bank is a financial
institution engaged in the business of
accepting deposits and making loans to
the people.
22. Central Bank
A Central Bank is an apex institution
of a country that controls and
regulates the monetary and financial
system of the country.
23. Functions of Commercial bank
Acceptance of deposits from the public
Advancing of loans
Investment Of Funds
Agency Function
Remittance of funds
Collection and payment of fund
Sale and purchase of security
Representation and correspondence
Trusteeship
General utility functions
Credit creation
24. Factors affecting Credit Creation
Primary cash deposits
Cash reserve ratio
Banking habits of the people
Policy of the Central
25. Functions Of Central banks(RBI)
Bank Of issue
Banker, agent and advisor to the
government
Custodian of nation’s reserves of
international currency
Lender of the last resort
Bank of central clearance
Controller of money supply and credit
26. Instruments of Monetary
Policy or Credit Control
Measures
Quantitative Instruments
Bank rate
Open market operation
Cash Reserve Ratio (CRR)
Statutory Liquidity Ratio (SLR)
27. Instruments of Monetary
Policy or Credit Control
Measures
Qualitative Instruments
Margin requirements
Rationing of credit
Direct action
Moral suasion
28. Cash Reserve Ratio(CRR)
It refers to the minimum
percentage of a bank’s total
deposits required to be kept with
the Central Bank.
29. Statutory Liquidity Ratio(SLR)
Every Bank is required to maintain
a fixed percentage of its assets in
the form of cash Or Other Liquid
assets.