The document discusses money and near money. It defines money as anything that is generally acceptable as a means of exchange, measure of value, and store of value. There are three types of money: metallic, paper, and credit money. Near money refers to assets that have high liquidity and can be converted to money, such as bills of exchange, bonds, debentures, and shares. Near money differs from money in that it is not directly used in transactions and must be converted first. The degree of liquidity, or ease of conversion to cash, determines how near an asset is to being money. A monetary economy uses money as a medium of exchange, whereas a barter economy exchanges goods directly without money.
Money was not used in early history as exchanges were done through bartering. Definitions of money include anything widely accepted for payments or that acts as a medium of exchange, store of value, and unit of account. Money serves four main functions: medium of exchange, store of value, unit of account, and deferred payment. The money supply is the total amount of money available in an economy and is composed of currency and demand deposits. It is determined by the monetary base and money multiplier. Money supply measurements include M0, M1, M2, M3, and M4. Inflation is a sustained increase in the general price level and can be caused by an increase in the money supply, decrease in goods supply
This document defines and explains the key components of money supply and how it is measured. It discusses four main measures of money supply: M0, M1, M2, and M3. M1 includes currency in circulation and demand deposits. M2 adds savings deposits and time deposits. M3 includes longer-term time deposits. Each measure expands the definition in terms of liquidity and availability for use in transactions. The document also explains the components that make up each measure, such as currency, demand deposits, savings deposits, and time deposits.
This document discusses the concepts of money supply and demand for money. It defines money supply as the total amount of currency, coins, and demand deposits in circulation in an economy at a given time. The document outlines the traditional and modern approaches to defining money supply and discusses factors that determine money supply such as monetary policy, cash reserve ratios, and government budgets. It also explains Keynes' approach to demand for money, which includes transaction, precautionary, and speculative motives that influence the amount of money people desire to hold.
The money supply is the total stock of money available in an economy at a given time and can be defined in different ways. The monetary base (M0) comprises cash in circulation and central bank reserves. Narrow money (M1) includes M0 as well as checkable deposits and some savings. Broad money (M2) contains M1 plus long-term savings deposits, capturing money fulfilling both medium of exchange and store of value functions.
The document summarizes the quantity theory of money and the Cambridge cash-balance approach. The quantity theory states that changes in the money supply will directly impact the price level, as long as other factors remain constant. It presents Fisher's equation of exchange and assumptions of the theory. The Cambridge approach focuses on the demand for money determining prices, and presents equations from Marshall, Pigou, Robertson, and Keynes relating money supply, income, and demand for cash balances to price levels. Criticisms of both theories are outlined.
The document discusses the Purchasing Power Parity (PPP) theory, which states that exchange rates between currencies are determined by their relative purchasing power. It explains that under PPP, exchange rates adjust to changes in inflation so that the same goods cost the same in each country when prices are converted to a common currency. The document outlines the absolute and relative versions of PPP theory and notes some limitations, such as differences in goods baskets between countries. An example is provided to demonstrate how exchange rates adjust proportionally according to changes in domestic and foreign inflation rates under relative PPP.
Monetary policy refers to policies aimed at regulating money supply and interest rates to achieve objectives like economic growth, price stability, and full employment. The Reserve Bank of India formulates and implements monetary policy by influencing money supply and credit creation. While monetary policy can help economic goals, it faces limitations in developing economies from non-monetized sectors, unorganized financial markets, excess liquidity, and lack of coordination with fiscal policy. Overall, monetary policy plays an important role in India's economy despite these challenges.
The objectives of monetary policy are: 1) economic growth through proper utilization of resources and increasing income and living standards, 2) exchange stability by adjusting exchange rates to achieve a favorable balance of payments, and 3) price stability to improve confidence and ensure equal distribution of income and wealth. Other objectives include attaining full employment, controlling credit, reducing income and wealth inequalities, and creating/expanding financial institutions to mobilize savings.
Money was not used in early history as exchanges were done through bartering. Definitions of money include anything widely accepted for payments or that acts as a medium of exchange, store of value, and unit of account. Money serves four main functions: medium of exchange, store of value, unit of account, and deferred payment. The money supply is the total amount of money available in an economy and is composed of currency and demand deposits. It is determined by the monetary base and money multiplier. Money supply measurements include M0, M1, M2, M3, and M4. Inflation is a sustained increase in the general price level and can be caused by an increase in the money supply, decrease in goods supply
This document defines and explains the key components of money supply and how it is measured. It discusses four main measures of money supply: M0, M1, M2, and M3. M1 includes currency in circulation and demand deposits. M2 adds savings deposits and time deposits. M3 includes longer-term time deposits. Each measure expands the definition in terms of liquidity and availability for use in transactions. The document also explains the components that make up each measure, such as currency, demand deposits, savings deposits, and time deposits.
This document discusses the concepts of money supply and demand for money. It defines money supply as the total amount of currency, coins, and demand deposits in circulation in an economy at a given time. The document outlines the traditional and modern approaches to defining money supply and discusses factors that determine money supply such as monetary policy, cash reserve ratios, and government budgets. It also explains Keynes' approach to demand for money, which includes transaction, precautionary, and speculative motives that influence the amount of money people desire to hold.
The money supply is the total stock of money available in an economy at a given time and can be defined in different ways. The monetary base (M0) comprises cash in circulation and central bank reserves. Narrow money (M1) includes M0 as well as checkable deposits and some savings. Broad money (M2) contains M1 plus long-term savings deposits, capturing money fulfilling both medium of exchange and store of value functions.
The document summarizes the quantity theory of money and the Cambridge cash-balance approach. The quantity theory states that changes in the money supply will directly impact the price level, as long as other factors remain constant. It presents Fisher's equation of exchange and assumptions of the theory. The Cambridge approach focuses on the demand for money determining prices, and presents equations from Marshall, Pigou, Robertson, and Keynes relating money supply, income, and demand for cash balances to price levels. Criticisms of both theories are outlined.
The document discusses the Purchasing Power Parity (PPP) theory, which states that exchange rates between currencies are determined by their relative purchasing power. It explains that under PPP, exchange rates adjust to changes in inflation so that the same goods cost the same in each country when prices are converted to a common currency. The document outlines the absolute and relative versions of PPP theory and notes some limitations, such as differences in goods baskets between countries. An example is provided to demonstrate how exchange rates adjust proportionally according to changes in domestic and foreign inflation rates under relative PPP.
Monetary policy refers to policies aimed at regulating money supply and interest rates to achieve objectives like economic growth, price stability, and full employment. The Reserve Bank of India formulates and implements monetary policy by influencing money supply and credit creation. While monetary policy can help economic goals, it faces limitations in developing economies from non-monetized sectors, unorganized financial markets, excess liquidity, and lack of coordination with fiscal policy. Overall, monetary policy plays an important role in India's economy despite these challenges.
The objectives of monetary policy are: 1) economic growth through proper utilization of resources and increasing income and living standards, 2) exchange stability by adjusting exchange rates to achieve a favorable balance of payments, and 3) price stability to improve confidence and ensure equal distribution of income and wealth. Other objectives include attaining full employment, controlling credit, reducing income and wealth inequalities, and creating/expanding financial institutions to mobilize savings.
Money takes various forms including coins, banknotes, and records of debt. It functions as a medium of exchange, unit of account, and store of value. Historically, money transitioned from livestock and commodities to precious metals and eventually fiat currency issued by governments. In India, the rupee is the currency, printed by the RBI and minted by the IGM. Money supply refers to the total amount of money available in an economy and is defined and measured differently by central banks using metrics like M0, M1, M2, M3, and M4. The RBI uses tools like reserve ratios, interest rates, monetary policy, and open market operations to control money supply and stabilize prices.
This document provides an overview of money and banking concepts. It defines money's primary functions as a medium of exchange and unit of account, and secondary functions as a store of value, standard for deferred payments, and means to easily transfer value. Money is classified as full-bodied, representative full-bodied, and credit money based on the relationship between its value as money and commodity value. Representative money includes convertible and inconvertible paper money. Credit money encompasses token coins, representative token money, circulating promissory notes, and demand deposits in banks. Key terms and characteristics of money are also introduced. The next session will cover characteristics of money in more detail.
Commercial banks perform various primary functions including accepting deposits, advancing loans, creating credit, clearing checks, financing foreign trade, and remitting funds. They also perform secondary functions such as providing agency services like collecting payments, purchasing and selling securities, and remitting money. Commercial banks play an important role in a country's economic development by channeling funds from savers to borrowers and investors.
This document defines money and discusses its origins and functions. It begins by defining money according to economists as anything that serves as a medium of exchange, unit of account, and store of value. Money originated as commodity money, then metallic money like gold and silver coins, followed by paper currency and checks as credit/bank money, and now electronic banking. The primary functions of money are as a medium of exchange, unit of account, standard for deferred payments, and store of value. It also has secondary functions like aiding specialization and trade and being used for loans, and contingent functions related to incomes, credit systems, and liquidity. The document outlines the evolution and roles of money.
The Baumol model describes money demand as a tradeoff between liquidity and interest rate returns. It assumes consumers can keep income as cash or in savings accounts. Cash earns no interest while savings accounts pay interest i, the opportunity cost of holding cash. Consumers minimize costs by choosing the optimal number of trips N to the bank to withdraw cash. Their average money holdings is Y/2N. The Baumol-Tobin money demand function shows real money demand depends positively on income and withdrawal costs, and negatively on the interest rate.
In monetary economics, the quantity theory of money (QTM) states that the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply. The theory was challenged by Keynesian economics,but updated and reinvigorated by the monetarist school of economics. While mainstream economists agree that the quantity theory holds true in the long run, there is still disagreement about its applicability in the short run. Critics of the theory argue that money velocity is not stable and, in the short-run, prices are sticky, so the direct relationship between money supply and price level does not hold.
Alternative theories include the real bills doctrine and the more recent fiscal theory of the price level.
The document discusses the characteristics of money. It explains that early societies used bartering with goods like animals and food, but that carrying all these items was inconvenient. Money was then invented as it is durable, portable, divisible, uniform, available in limited supply, and universally accepted. The six key characteristics of money are described in detail. The document notes that the US Federal Reserve plays a role in determining how much money is in circulation.
This document provides an overview of foreign exchange, including definitions, markets, exchange rate systems, and instruments of foreign payment. It defines foreign exchange as the currency of other countries and explains that foreign exchange markets allow countries to settle international debts. The two main exchange rate systems are fixed and floating rates. Under a fixed system the rate is set, while under a floating system the rate is determined by market forces. Common instruments for foreign payments include letters of credit, bills of exchange, bank drafts, and money orders. Exchange controls are implemented by governments to manage exchange rates and the balance of payments.
Chapter no 1 Nature and functions of money heena ayaz
This document provides an overview of money and its functions. It defines money and outlines its main functions, which include being a medium of exchange, measure of value, store of wealth, and enabling future payments and economic activities. The document also discusses the evolution of money from commodity to metallic to paper to electronic forms. It lists the key qualities of good money, such as acceptability, transferability, stability, and divisibility. Finally, it describes the barriers of the barter system and highlights the important role money plays in daily life and the economy.
The document discusses interest rates and bond yields. It covers two main theories of how interest rates are determined: the loanable funds theory and liquidity preference theory. The loanable funds theory states that interest rates are determined by the supply and demand of loanable funds in the market. The liquidity preference theory argues that interest rates are determined by the supply of money and demand to hold money. The document also discusses how various economic factors can influence interest rate movements. It defines bond yields and the yield to maturity calculation.
This document provides an overview of foreign capital in India. It discusses the different forms of foreign capital including foreign direct investment, foreign portfolio investment, external aid, and external commercial borrowings. FDI can take the form of joint ventures, technical collaborations, or private placements. FPI includes investments in stocks, bonds, and funds raised through instruments like GDRs and ADRs. External aid may come from other governments, international organizations, or private sources, and can be tied to certain conditions or untied. ECBs comprise loans and credits from foreign commercial and multilateral sources used to finance commercial activities in India. The document also outlines advantages and disadvantages of foreign capital.
This presentation explains various monetary instruments being adopted by the Reserve Bank of India. It also shows their impact on stock market. It also show the statistic trend of inflation, repo rate, reverse repo rate, etc in India.
The document discusses various economic policies and tools used by governments and central banks, with a focus on India. It describes monetary policy as aiming to promote economic growth while maintaining stability. The major objectives of monetary policy in India are outlined as promoting capital formation, regulating bank credit, encouraging monetization, achieving growth with stability, and maintaining balance of payments equilibrium. Tools of monetary policy discussed include bank rate policy, open market operations, cash reserve ratios, and qualitative credit controls.
This document discusses money and banking. It covers the key characteristics of money including durability, portability, divisibility, uniformity, limited supply, and acceptability. The theoretical and empirical definitions of money are also presented, including the traditional definition, Friedman's definition, Radcliff's definition, and Gurley and Shaw's definition. Key terms like legal tender are defined. The session aims to help understand the characteristics of money and its different definitions.
Velocity of money is calculated by dividing GDP by the value of money supply. Different measurements of money supply (M0, M1, M2, M3) show different velocities, as they represent different components of the money supply. M0 only includes currency in circulation and bank reserves, while M3 includes a broader range of assets. Understanding how money moves between entities in an economy helps explain why velocity, or the rate of money circulation, is important for economic growth.
Devaluation is a downward adjustment to a country's currency value relative to other currencies. It is used by countries with fixed exchange rates as a monetary policy tool. India has devalued the rupee multiple times, such as in 1966 and 1991, to combat trade imbalances and boost exports. Devaluation makes exports cheaper and imports more expensive. This improves the current account balance but also increases prices for imports, hurting consumers and raising inflation. The effects depend on elasticity of demand and supply for exports and imports.
Monetary policy refers to actions taken by central banks to control money supply and credit conditions in order to promote economic growth and stability. The key objectives of monetary policy are full employment, price stability, economic growth, and balance of payments equilibrium. Central banks use both quantitative and qualitative instruments to achieve these objectives. Quantitative instruments include open market operations, bank rate changes, and reserve requirement ratios. Qualitative instruments include credit rationing, margin requirements, and moral suasion. Recent trends in India's monetary policy include keeping the repo rate unchanged at 8% while reducing statutory liquidity ratio requirements.
This document provides an overview of money, including its definition, evolution, characteristics, types, functions, demand and supply. It defines money as anything widely used and accepted in transactions. Money has evolved from commodity money backed by precious metals to modern fiat currency not backed by any commodity. Key characteristics include durability, divisibility, transportability and limited supply. The main types discussed are commodity, fiat and bank money. Functions of money include serving as a unit of value, medium of exchange, store of value and standard for deferred payments. Demand is influenced by transactions, precautionary and speculative motives, while supply includes currency and bank deposits measured by indicators like M1, M2 and M3.
Gold standard is a monetary system in which the standard unit of currency is a fixed quantity of gold or is kept at the value of a fixed quantity of gold.
The document discusses money, its functions and meaning. It defines money as anything generally accepted as a medium of exchange. The functions of money are outlined as a medium of exchange, a store of value, and a unit of account. Broad and narrow definitions of money are presented. The ideal attributes of money are described as durability, divisibility, transportability and non-counterfeitability. The evolution of money from commodity to fiat currency is summarized.
This document provides an overview of economics topics related to money including:
- Definitions of money and the money supply (M1, M2, M3)
- Characteristics of money such as acceptability, stability, divisibility
- Functions of money as a medium of exchange, store of value, and unit of account
- Factors that influence the supply and demand of money including interest rates, income levels, and price levels
- Relationship between real and nominal money balances and how inflation impacts demand
- Tools of monetary policy used by central banks including open market operations, reserve requirements, and discount rates
Money takes various forms including coins, banknotes, and records of debt. It functions as a medium of exchange, unit of account, and store of value. Historically, money transitioned from livestock and commodities to precious metals and eventually fiat currency issued by governments. In India, the rupee is the currency, printed by the RBI and minted by the IGM. Money supply refers to the total amount of money available in an economy and is defined and measured differently by central banks using metrics like M0, M1, M2, M3, and M4. The RBI uses tools like reserve ratios, interest rates, monetary policy, and open market operations to control money supply and stabilize prices.
This document provides an overview of money and banking concepts. It defines money's primary functions as a medium of exchange and unit of account, and secondary functions as a store of value, standard for deferred payments, and means to easily transfer value. Money is classified as full-bodied, representative full-bodied, and credit money based on the relationship between its value as money and commodity value. Representative money includes convertible and inconvertible paper money. Credit money encompasses token coins, representative token money, circulating promissory notes, and demand deposits in banks. Key terms and characteristics of money are also introduced. The next session will cover characteristics of money in more detail.
Commercial banks perform various primary functions including accepting deposits, advancing loans, creating credit, clearing checks, financing foreign trade, and remitting funds. They also perform secondary functions such as providing agency services like collecting payments, purchasing and selling securities, and remitting money. Commercial banks play an important role in a country's economic development by channeling funds from savers to borrowers and investors.
This document defines money and discusses its origins and functions. It begins by defining money according to economists as anything that serves as a medium of exchange, unit of account, and store of value. Money originated as commodity money, then metallic money like gold and silver coins, followed by paper currency and checks as credit/bank money, and now electronic banking. The primary functions of money are as a medium of exchange, unit of account, standard for deferred payments, and store of value. It also has secondary functions like aiding specialization and trade and being used for loans, and contingent functions related to incomes, credit systems, and liquidity. The document outlines the evolution and roles of money.
The Baumol model describes money demand as a tradeoff between liquidity and interest rate returns. It assumes consumers can keep income as cash or in savings accounts. Cash earns no interest while savings accounts pay interest i, the opportunity cost of holding cash. Consumers minimize costs by choosing the optimal number of trips N to the bank to withdraw cash. Their average money holdings is Y/2N. The Baumol-Tobin money demand function shows real money demand depends positively on income and withdrawal costs, and negatively on the interest rate.
In monetary economics, the quantity theory of money (QTM) states that the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply. The theory was challenged by Keynesian economics,but updated and reinvigorated by the monetarist school of economics. While mainstream economists agree that the quantity theory holds true in the long run, there is still disagreement about its applicability in the short run. Critics of the theory argue that money velocity is not stable and, in the short-run, prices are sticky, so the direct relationship between money supply and price level does not hold.
Alternative theories include the real bills doctrine and the more recent fiscal theory of the price level.
The document discusses the characteristics of money. It explains that early societies used bartering with goods like animals and food, but that carrying all these items was inconvenient. Money was then invented as it is durable, portable, divisible, uniform, available in limited supply, and universally accepted. The six key characteristics of money are described in detail. The document notes that the US Federal Reserve plays a role in determining how much money is in circulation.
This document provides an overview of foreign exchange, including definitions, markets, exchange rate systems, and instruments of foreign payment. It defines foreign exchange as the currency of other countries and explains that foreign exchange markets allow countries to settle international debts. The two main exchange rate systems are fixed and floating rates. Under a fixed system the rate is set, while under a floating system the rate is determined by market forces. Common instruments for foreign payments include letters of credit, bills of exchange, bank drafts, and money orders. Exchange controls are implemented by governments to manage exchange rates and the balance of payments.
Chapter no 1 Nature and functions of money heena ayaz
This document provides an overview of money and its functions. It defines money and outlines its main functions, which include being a medium of exchange, measure of value, store of wealth, and enabling future payments and economic activities. The document also discusses the evolution of money from commodity to metallic to paper to electronic forms. It lists the key qualities of good money, such as acceptability, transferability, stability, and divisibility. Finally, it describes the barriers of the barter system and highlights the important role money plays in daily life and the economy.
The document discusses interest rates and bond yields. It covers two main theories of how interest rates are determined: the loanable funds theory and liquidity preference theory. The loanable funds theory states that interest rates are determined by the supply and demand of loanable funds in the market. The liquidity preference theory argues that interest rates are determined by the supply of money and demand to hold money. The document also discusses how various economic factors can influence interest rate movements. It defines bond yields and the yield to maturity calculation.
This document provides an overview of foreign capital in India. It discusses the different forms of foreign capital including foreign direct investment, foreign portfolio investment, external aid, and external commercial borrowings. FDI can take the form of joint ventures, technical collaborations, or private placements. FPI includes investments in stocks, bonds, and funds raised through instruments like GDRs and ADRs. External aid may come from other governments, international organizations, or private sources, and can be tied to certain conditions or untied. ECBs comprise loans and credits from foreign commercial and multilateral sources used to finance commercial activities in India. The document also outlines advantages and disadvantages of foreign capital.
This presentation explains various monetary instruments being adopted by the Reserve Bank of India. It also shows their impact on stock market. It also show the statistic trend of inflation, repo rate, reverse repo rate, etc in India.
The document discusses various economic policies and tools used by governments and central banks, with a focus on India. It describes monetary policy as aiming to promote economic growth while maintaining stability. The major objectives of monetary policy in India are outlined as promoting capital formation, regulating bank credit, encouraging monetization, achieving growth with stability, and maintaining balance of payments equilibrium. Tools of monetary policy discussed include bank rate policy, open market operations, cash reserve ratios, and qualitative credit controls.
This document discusses money and banking. It covers the key characteristics of money including durability, portability, divisibility, uniformity, limited supply, and acceptability. The theoretical and empirical definitions of money are also presented, including the traditional definition, Friedman's definition, Radcliff's definition, and Gurley and Shaw's definition. Key terms like legal tender are defined. The session aims to help understand the characteristics of money and its different definitions.
Velocity of money is calculated by dividing GDP by the value of money supply. Different measurements of money supply (M0, M1, M2, M3) show different velocities, as they represent different components of the money supply. M0 only includes currency in circulation and bank reserves, while M3 includes a broader range of assets. Understanding how money moves between entities in an economy helps explain why velocity, or the rate of money circulation, is important for economic growth.
Devaluation is a downward adjustment to a country's currency value relative to other currencies. It is used by countries with fixed exchange rates as a monetary policy tool. India has devalued the rupee multiple times, such as in 1966 and 1991, to combat trade imbalances and boost exports. Devaluation makes exports cheaper and imports more expensive. This improves the current account balance but also increases prices for imports, hurting consumers and raising inflation. The effects depend on elasticity of demand and supply for exports and imports.
Monetary policy refers to actions taken by central banks to control money supply and credit conditions in order to promote economic growth and stability. The key objectives of monetary policy are full employment, price stability, economic growth, and balance of payments equilibrium. Central banks use both quantitative and qualitative instruments to achieve these objectives. Quantitative instruments include open market operations, bank rate changes, and reserve requirement ratios. Qualitative instruments include credit rationing, margin requirements, and moral suasion. Recent trends in India's monetary policy include keeping the repo rate unchanged at 8% while reducing statutory liquidity ratio requirements.
This document provides an overview of money, including its definition, evolution, characteristics, types, functions, demand and supply. It defines money as anything widely used and accepted in transactions. Money has evolved from commodity money backed by precious metals to modern fiat currency not backed by any commodity. Key characteristics include durability, divisibility, transportability and limited supply. The main types discussed are commodity, fiat and bank money. Functions of money include serving as a unit of value, medium of exchange, store of value and standard for deferred payments. Demand is influenced by transactions, precautionary and speculative motives, while supply includes currency and bank deposits measured by indicators like M1, M2 and M3.
Gold standard is a monetary system in which the standard unit of currency is a fixed quantity of gold or is kept at the value of a fixed quantity of gold.
The document discusses money, its functions and meaning. It defines money as anything generally accepted as a medium of exchange. The functions of money are outlined as a medium of exchange, a store of value, and a unit of account. Broad and narrow definitions of money are presented. The ideal attributes of money are described as durability, divisibility, transportability and non-counterfeitability. The evolution of money from commodity to fiat currency is summarized.
This document provides an overview of economics topics related to money including:
- Definitions of money and the money supply (M1, M2, M3)
- Characteristics of money such as acceptability, stability, divisibility
- Functions of money as a medium of exchange, store of value, and unit of account
- Factors that influence the supply and demand of money including interest rates, income levels, and price levels
- Relationship between real and nominal money balances and how inflation impacts demand
- Tools of monetary policy used by central banks including open market operations, reserve requirements, and discount rates
This document provides a high-level overview of how money is created in the modern U.S. banking system. It describes that money primarily takes the form of currency and demand deposits. Banks have the ability to create money by making loans, which increases their deposits that are counted as part of the money supply. However, banks must maintain required reserves to back their deposits, and these reserves ultimately come from the Federal Reserve, giving the Fed control over the money supply. The amount of money created from additional reserves depends on the required reserve ratio. Several factors influence how changes in reserves impact the actual money supply.
This document discusses the definition and functions of money. It begins by defining money, currency, wealth, and income. It then outlines the three main functions of money: as a medium of exchange, unit of account, and store of value. The document discusses how money is measured through various monetary aggregates (M0, M1, M2) as defined by the IMF. It also traces the evolution of payment systems from barter to various forms of currency. The key points are that money serves critical economic functions and its definition has evolved as payment systems advanced over time.
This document discusses various topics related to money and banking, including:
- The evolution of money from barter trade to commodity money to coins and notes.
- The functions of money as a medium of exchange, unit of account, and store of value.
- Banking services like loans, overdrafts, drafts, and different types of cheques.
- Qualities of good money and the demand for money for transaction, precautionary, and speculative motives.
- Differences between money and capital, and forms of money like coins, banknotes, and deposits.
Impact of money & quasi money on the economy of Pakistansamramalik92
This document analyzes the impact of money and quasi-money on Pakistan's economy using regression analysis. Money and quasi-money are the independent variables, while GDP growth rate is the dependent variable. Regression analysis found a positive relationship between money and quasi-money (M2) as a percentage of GDP and GDP growth rate, with an R-squared value of 0.3847. The analysis concludes that as money and quasi-money levels increase, GDP growth rate also increases. Data from 1998-2015 is used in the analysis.
Modern Money Mechanics provides a concise overview of how money is created in the US banking system. It explains that money consists of currency and checkable deposits that function as media of exchange. Banks create money by making loans that increase deposits. While the Federal Reserve and depository institutions can influence money supply, the central bank has primary control over money creation through regulating bank reserves. The value of money comes from public confidence that it can be exchanged for other assets and goods/services, based on its scarcity relative to its usefulness in facilitating transactions.
"Modern Money Mechanics" was a booklet published and distributed by the Federal Reserve Bank of Chicago, originally written by Dorothy M. Nichols in May 1961. Described as a "workbook on bank reserves and deposit expansion", the text offers a detailed description of the basic process of money creation in a fractional reserve banking system. The approach taken illustrates the changes in bank balance sheets that occur when deposits in banks change as a result of monetary action by the Federal Reserve System.
The booklet is now out of print.
Money takes many forms and serves several important functions in modern societies. It acts as a medium of exchange, unit of account, and store of value. Common forms of money today include currency and bank deposits. Credit is a way for one party to provide resources to another party who does not pay back immediately but arranges to repay the resources later, possibly with interest. Banks play an important role by accepting deposits from customers and loaning out a portion of those deposits to earn interest while maintaining enough on hand to satisfy customer needs.
This document discusses various topics related to money and banking, including:
1. The definition and functions of money as a medium of exchange. It also discusses the evolution of different forms of money from bartering to coins to paper currency.
2. The qualities and characteristics that make for good forms of money, including acceptability, portability, divisibility, and stability in value.
3. The different types of banks like commercial banks, central banks, and savings banks. It also discusses bank accounts, checks, deposits, withdrawals and other banking services and processes.
4. Challenges faced by commercial banks in Tanzania including poor customers, lack of collateral, and illiteracy.
Money serves three main functions in an economy: as a medium of exchange to facilitate trade, as a unit of account to measure value, and as a store of value to save purchasing power over time. Money has developed historically from bartering goods and services to using widely accepted commodities like gold and silver coins and notes. There are different definitions of money that include currency in circulation (M1), savings accounts and CDs that can be easily converted to currency (M2), and larger deposits and institutional funds (M3). Money supply, velocity of money circulating, price levels, and real output are related through the equation MV=PQ.
The document discusses the evolution of money from barter systems to modern forms. It begins by describing barter systems and their limitations, then moves to commodity money like precious metals. It describes how goldsmith receipts evolved into paper money and different types of paper currency. Later forms of money discussed include bank money, plastic money, and different central banking approaches to currency issuance like commodity backing and reserve requirements. The document provides an overview of the development of money from early barter to modern monetary systems.
introductiontomoney is guiding to money and it is most importance in economy ...MengsongNguon
The document discusses the evolution of money from barter systems to modern forms. It begins by describing barter systems and their limitations, then moves to commodity money like precious metals. It notes that goldsmith receipts evolved into paper money and different forms like commodity, metallic, representative, convertible, and fiat money. Later systems include bank money like checks, plastic money, and different reserve systems central banks use to issue currency like minimum reserves. The document covers advantages and disadvantages of different money systems throughout history.
This document discusses several topics related to money, including:
1. It defines money supply and its determinants, and explains that money supply is composed of currency with the public and demand deposits with the public.
2. It lists factors that can increase money supply such as expansionary monetary policy through open market purchases or decreasing reserve requirements.
3. It discusses problems with implementing monetary policy in Bangladesh, including the existence of non-monetized sectors, excess non-banking financial institutions, and unorganized financial markets.
This document provides an overview of money and banking topics including:
The functions of money as a medium of exchange, measure of value, and method of storing wealth. It defines different measures of the money supply from M1 to M3. It also discusses monetary standards, financial institutions like commercial banks, and the role of the Federal Reserve System in the US.
This document discusses several topics related to money, credit, and banking. It defines money and credit, and explains their functions. It discusses different types of exchange rate policies that countries use to manage their currencies. It also describes the roles and responsibilities of central banks like the Bangko Sentral ng Pilipinas, including issuing currency, advising the government, regulating banks and money supply, and acting as a lender of last resort.
This document defines money and discusses its functions and evolution. It notes that money acts as a medium of exchange, store of value, and unit of account. Originally barter and commodities were used, but money developed to solve difficulties with barter. Coins and paper money later replaced commodities as money. Modern money includes coins, paper notes, and checkable deposits. Central banks control money supply and commercial banks create credit and accept deposits.
Money originated from barter systems and metals and now each country has its own currency to facilitate transactions. Money has static functions like being a medium of exchange and unit of account, and dynamic functions like determining economic trends and consumption. Money is classified based on physical form, acceptability, money of account versus money proper, and types including commodity, fiat, credit, and digital. A country's money supply includes currencies and various deposits. The Reserve Bank of India uses credit control methods like quantitative and qualitative tools to monitor money supply and support economic development and stability.
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An investment bank specializes in selling securities and underwriting new equity shares to raise capital funds, differing from a commercial bank which focuses on deposits and loans. Investment banks engage in proprietary trading with their own funds to generate profits, make markets by buying and selling securities, advise on mergers and acquisitions, and design new financial products. Money evolved from barter systems and early commodity forms to modern fiat currency and digital payments. It functions as a medium of exchange, store of value, unit of account, and standard for deferred payments. Near money refers to highly liquid assets like savings accounts, money market funds, and short-term bonds and securities that can quickly be converted to cash.
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2. Crowther defines money as “anything that
is generally acceptable as a means of
exchange and at the same time acts as a
measure and store of value”.
DEFINITION OF MONEY
3. TYPES OF MONEY
1. METALLIC MONEY 2.PAPER MONEY 3.CREDIT MONEY
money made up of
metal.
Eg : Gold, Silver,
Copper.
Types :
1. Standard money
2.Token money
Money made up of
paper.
consist of currency
note issued by govt. or
the central bank of the
country.
Types:
1. Representative
money
2.Convertible money
3.Inconvertible
money
4.Fiat money
It refers to a future
monetary claim against
an individual .
Forms:
1.Bonds
2.Money market
Eg: bank
deposits,credit
card loans.
4. NEAR MONEY
Near money refers to all those assets which posses many of the
characteristics of money, have high degree of liquidity and can
inexpensively be converted into money . There are assets which
cannot be technically regarded as money and perform some
functions of money . Near money cannot be directly used for making
transactions. They must be converted into money proper before
spending. Near money assets are highly liquid but are not as liquid
as the money is. Some examples of near money are bills of
exchange, bonds, debentures, shares etc.
5. ‘Nearness’ of near-money
depends on the degree of liquidity
of the near money assets. Liquidity
refers to the ease with which an
asset ,or security , can be
converted into ready cash without
affecting its market price on short
notice and with minimum cost.
Cash is the most liquid of assets
like tangible items unless liquid.
Greater the liquidity, more near an
asset is to money and vice versa.
Overall liquidity of an economy
depends upon the composition of
the total stock because different
assets carry different degrees of
liquidity.
For example, (A) coins,currency
notes and demand deposits
represent first grade liquidity ; (B)
time deposits, treasury bills, Govt
securities, saving loans etc.
represent second grade liquidity ;
(C) other assets like deposits of
building socities,financial claims of
hire purchase companies etc.
represent third grade liquidity.
6. ESTIMATION OF DEGREE OF LIQUIDITY OF ASSETS
ESTIMATION OF DEGREE OF LIQUIDITY OF ASSETS
>The given figure shows the distinction between
money and near money in terms of interest earnings
of an asset.
>An asset which earns interest rate is not money
and thus is near money and vice –versa.
>The degree of liquidity of an asset can be known
by the difference between marker rate of interest (MR)
and the actual rate of interest (AR).
>Given the (MR), the higher the (AR),the lower is the degree of
moneyness of an asset and vice-versa.
> Figure 1 and table 1 exhibit this relationship between the (AR)
and the degree of liquidity.
7. MR (%) AR(%) DEGREE OF
MONEYNESS
10 0 Full bodied
money
(100% liquidity)
10 2 Highest (80% liquidity)
10 4 Moderate (40% liquidity)
10 8 Lowest (20% liquidity)
10 10 No moneyness ( zero liquidity)
Market rate of interest (MR) being given (10%) there can be different rates of
interest earned by different assets such as 2%,4% and 8%. The degree of
moneyness is the highest (OM1 or 80%) in the asset which bears the lowest rate of
interest (AR=2%) ; and degree of moneyness is the lowest ( OM3 or 20%) in the
asset which bears the highest rate of interest. An asset earning AR=4% as
moderate degree of liquidity. If an asset bear 0 rate of interest it is a full bodied
money with 100% liquidity. IF THE RATE OF INTEREST IS EQUAL TO THE
MARKET RATE OF INTEREST AR=MR=100% THE DEGREE OF LIQUIDITY OF
THE ASSET BECOMES ZERO
8. 1. BILLS OF EXCHANGE : It is a promise to pay a specified sum of money on a
specified date generally after three months or ninety days. It may be treasury bill
or commercial bills or financial bills.
A. Commercial bill – Drawn in connection with the commercial transactions.
B. Treasury bill – Are the finance bills through which the government raises short
period funds.
C. Finance bill – Drawn when a person lends money to other person
TYPES OF NEAR MONEY
9. 2. BONDS: An instrument of borrowing for relatively long periods . It is a
promise to pay a fixed sum of money by way of interest annualy for a
specified number of years and to repay the capital sum at the end of the
period. This method of borrowing is adopted by the government and the
industrial units. Bonds issued by the firms are known as debentures .
Bonds issued by the government without a maturity date with interest
payable for the indefinite period are called irredeemable bonds or
consols or perpetuties .
10. 3.EQUITY SHARES : Equity shares offer their owners a claim to a share in
the profits of the firm declared as dividend. They are marketable in the
stock exchange. Bonds and debentures also are transacted in the stock
exchange, but the bills of exchange operate in the money market.
11. 4. OTHER NEAR MONEY ASSETS : Besides bill of exchange ,
bonds,equity shares there are a large number of financial assets which
can be considered as near money . They are time deposits and saving
deposits with commercial bank ; banker’s acceptances ;cash surrender
values of line insurance policies ; repurchasable shares in savings and
loan associations ; deposits of building societies ; traveller’s cheque ;
postal saving deposits ; saving in units of unit trust etc.
12. DISTINCTION BETWEEN MONEY AND NEAR MONEY
BASIS MONEY NEAR MONEY
1. DEFINATION It consists of coins,currency
notes and demand deposits
of the banks.
It includes the financial
assets , like time deposits,
bills of exchange , bonds ,
shares etc.
2.LIQUIDITY It possesses 100% liquidity
i.e it is perfectly liquid or
can be readily acceptable as
a means of payment .
It lacks 100% liquidity i.e it
involves time cost for its
conversion into money
3.FUNCTION It serves as a unit of
account for a common
measure of value. All prices
are expressed in terms of
money
It does not perform such
function rather , its own
value is expressed in terms
of money.
4. USE IN TRANSACTIONS It is directly used for making
transactions.
It is an indirect medium of
exchange .
5. INCOME YIELDING
QUALITY
It is not an income yielding
asset
They are income yeilding
assets.
13. SIMILARITIES BETWEEN MONEY AND NEAR-MONEY
(1)
• Both money and near money are claims. Coins and currency are a
claim over the govt. and central bank. Bank money is a claim over the
bank in which deposits are held. Near money assets are claim over
their respective parties or institutions.
(2)
• Money is not qualitatively different from near-money. Liquidity is the
common attribute of both money and near-money . They differ only in
terms of degree of liquidity.
(3)
• Both money and near-money act as a store of value . But, near-money
assets are preferred because they yield income along with being a
store of value.
14. 1.BROADER DEFINITION OF MONEY: The modern concept of money is based on
the liquidity approach, as compared to the traditional approach depending upon
the transactions approach. In the transactions approach money includes only
legal tender money and bank money whereas in the liquidity approach it
includes (a) legal tender money (b) bank money (c) near money i.e , all
those financial assets which can be easily and inexpensively convert it into
money proper within a short period of time.
2. INCREASE IN VELOCITY OF MONEY : Near- money influences the velocity of
money . A person’s ability to spend depends not only on the amount of money
he has with him and he holds in the bank ( legal money and bank money) , but
also on his ability to raise additional funds by selling his near- money assets .
The existence of near money increases the velocity of money (V) and hence
aggregate demand (MV) in the economy by activating idle demand deposits and
currency.
SIGNIFICANCE OF NEAR- MONEY
15. 3. POLICY IMPLICATIONS : Near-money has important policy implications for the
monetary authorities. The prevalence of near-money assets significantly
increases the overall level of liquidity and hence the level of aggregate
expenditure . The monetary authority which aims at influencing the level of
aggregate expenditure by controlling the money supply alone will fail to achieve
its objective. For the monetary policy to be effective, it must influence not only
the total stock of money in the economy, but also the total stock of near-money
assets.
SIGNIFICANCE OF NEAR-MONEY
Broader
definition of
money
Increase in
Velocity of
Money
Policy
implication
16. QUALITIES OF GOOD MONEY
MATERIAL
General
acceptabili
ty
portability
Durabilit
y
Divisibilit
y
homogeneit
y
Cognisabilit
y
Stability
Mallea
bility
17. 1.GENERAL ACCEPTABILITY: The material of which money is made should be
acceptable to all without any hesitation. Gold and silver are considered as good
money material because they are readily acceptable to the general public.
2. PORTABILITY: Money should be easily carried or transferred from one place to
another . Money material must have large value in small bulk.
3. DURABILITY: Money material must last for a long time without losing its value .
4. HOMOGENEITY : Money should be homogeneous . Its units should be identical ; they
should be of equal quality and physically indistinguishible.
5.COGNISABILITY : Money should be easily recognised .
6.STABILITY: The value of money should remain stable and should not change for a
long period of time .
7. DIVISIBILITY: Money material must be easily sub-divided to allow for the purchase of
smaller units of the commodities.
8. MALLEABILITY: The money material should be capable of being melted and put to
different forms.
18. Monetary economy refers to the economic system in which
money is used as a medium of exchange . It is a
monetarised economy in which goods are exchanged
indirectly through money ; money purchases goods and
goods purchase money. It is the opposite of barter economy
where no money is employed and the exchange takes place
directly between goods and goods. In short, the use of
money converts a barter economy into a monetary
economy.
MONETARY ECONOMY
19. FEATURES OF MONETARY ECONOMY
1.USE OF MONEY
Monetary economy employes money to
perform the following function:
a. Money is generally accepted as a
medium of exchange .
b. All payments are made in terms of
money.
c. It serves as a unit of account or a
numeric or a measure of value
d. It functions as a standard of deferred
payments.
e. It facilitates the transfer of value from
one place to another.
2.MONEY AS AN ASSET
In a monetary economy individuals
also use money as an asset . Like
other assets wealth can be stored in
the form of money . It is considered
as an asset because it is the
permanent abode of purchasing
power i.e it is a claim against all
goods and services which an
individual desires to have .
20. 3. GREATER LIQUIDITY
4.EXISTENCE OF FINANCIAL
INSTITUTIONS
Monetary economy has greater
liquidity than the barter economy
has. Money is the most liquid
asset and is used as a link
between the present and the
future in a monetary economy .
Such a link is absent in the barter
system.
Financial institutions such a
central bank, commercial banks
and other financial institutions
exist in monetary economy unlike
in barter system. These
institutions deal with a variety of
non-cash financial assets or near-
money assets..Thus, in monetary
economy, besides money a
number of near-money assets are
also created and widely used.
21. 5.EFFICIENT EXCHANGE SYSTEM 6.MARKET MECHANISM
As compared to the barter system
exchange activities are performed
more efficiently and more
conveniently in a monetary
economy. All the difficulties and
inconveniences of barter system ,
such as the problem of double
coincidence of wants , divisibility ,
storing wealth, common measure
, deferred payments,
transportation etc. are eliminated
in a monetary economy.
As against barter system , market
mechanism operates in a market
economy because of the use of
money. In market mechanism, the
forces of demand and supply
interact with prices. Prices, which
indicates the relative importance
of various goods and services are
expressed in terms of
money.Thus the use of money is
essential for a working market
mechanism.
22. 7.INTERACTION B/W MONETARY
AND REAL FACTORS
8.STAGE OF ECONOMIC
DEVELOPMENT
As opposed to the barter
economy, there is circular flow of
money corresponding to the
circular flow of real transactions in
a monetary economy. In the
circular flow of real transactions,
factor services flow from
household to the firm and goods
and services flow from firms to
households. In the circular flow of
money , money flows from firms
to households and from
households to the firms.
Monetary economy is relatively
advanced economy as compared
to the barter economy. In the
barter economy, economic
activities (production and trade)
are at a low and subsistence level
and there is economic
backwardness. Where as, in the
monetary economy because of
the extensive use of money,
division of labour takes place ,
technology develops, production
increases, trade expands and
there is economic development.