Money and banking lecture notes ppt

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Money and banking lecture notes ppt

A barter system is one in which goods and services are exchanged directly for goods and services. A monetary system uses some universally recognized currency to facilitate transactions.

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Money serves as a medium of exchange, a unit of account, and a store of value. What is Money? It requires a double coincidence of wants. For example, if you decide that you want a new, red Saturn, you must find someone who has such a car and she must be willing to trade the Saturn for something that you have.

For example, you might have a brand new Chevy Blazer that the Saturn owner wants. You can then exchange the Saturn for the Blazer. Such transactions are difficult and clumsy.

Money & Banking - MGT411 VU Video Lectures

We can ease the transition process by using a monetary system. Now if you wish to acquire a Saturn, you can simply go to the owner of the Saturn and pay money for the car. You do not need to have something of equal value that the Saturn owner wishes to have.

The double coincidence of wants is unnecessary. In common usage, the terms money, income, and wealth are often used interchangeably. For example, a person might say 'How much money do you make? To an economist, these terms have different, distinct meanings. Income is the flow of revenue over a particular time period. For an income measurement to make sense, one must define it in terms of a particular time period.

Without a time qualification, income could refer to almost anything. Wealth is the value of your stock of assets at a particular point in time. Your assets are things of value that you own. For example, your house, stocks, car, and funds in your savings account are all part of your wealth.

Wealth is a stock; it can be calculated at any moment in time. Money is something that serves these three purposes, First, it is a medium of exchange, or a means for making transactions.Make Economics comprehensive. Money and Banking Notes. Barter system of exchange :- Barter system of exchange is the system in which commodities are exchanged for commodities.

This is also called commodity for commodity exchange economy. Difficulties of Barter System of Exchange :- i. It requires double coincidence of wants which is a rare occurrence. It lacks a common unit of exchange.

It lacks the system of future payments or deffered payments. It lacks the system of storage of value. Definition of 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.

Classification of Money :- It is classified on the basis of value of money as money and value of money as commodity as following :- 1. Full bodied money. Representative full bodied money. Credit money. Medium of exchange:- It means that money acts as an intermediary for the goods and services in an exchange transaction. Measure of value or unit of value:- Money serves as a measure of value in terms of unit of account.

Unit of account means that the value of each good or service is measured in the monetary unit. Standard of differed payments:- Money is functioning as deferred Payments because its price remains relatively stable. D Store of value:- Storing of value means means store of purchasing power. It is convenient to store value in terms of money Because storage of money does not need much space Indian Monetary System:- It is based on paper currency standard.

Currency is issued in India by RBI based on minimum reserve system. Currency issued in India is inconvertible. The issuing authority will not convert it into bullion — gold or silver. Money Supply:- The supply of money means the total stock of all the forms of money Paper money, Coins and Bank deposits. Which are held by the public at any particular point of time.

Define Barter System. The system in which goods are exchanged with goods are called Barter system of exchange. Define C. An economy based on Barter system i. What do you mean by double coincidence of wants? Simultaneous fulfillment of mutual wants by buyers and sellers is known as double coincidence of wants.

Money and Banking: Lecture 32 - Regulation of Banks 1

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Title: Money and Banking Chapter 11 Lecture Description: and Bank Capital Requirements. Attempts to restrict banks from too much risk taking Bank Prudential Supervision: Chartering and Examination Tags: banking chapter lecture money.

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Check out PowerShow. There is truly something for everyone! Related More from user. Promoted Presentations.To browse Academia. Skip to main content. Log In Sign Up. Economics Money and Banking Lecture Notes. Gedela Praveen. Abel, Andrew B. Bernanke,Macroeconomics, 4th ed. Aliber, Robert Z. Baumol, William A. Blinder,Macroeconomics: Principles and Policy, 7th ed.

Hester, Donald,lecture notes for EconomicsUniversity of Wisconsin- Madison, fall semester. Compiled by Meredith Crowley. Mankiw, N. Mishkin, Frederic S. Ritter, Lawrence S. Silber and Gregory F. Stern, Gary H. Introduction: Topics A.

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Money: what it is and what it does B. Financial markets: what is traded, why it is traded, and who trades it 2. Principles of Finance: Topics A.To browse Academia. Skip to main content. Log In Sign Up. Dipak Mer.

Ireland Department of Economics Boston College irelandp bc. Function of Financial Markets and Financial Intermediaries 2. Types of Financial Intermediaries Depository Institutions Banks Contractual Savings Institutions Investment Intermediaries This chapter provides an overview of the financial system in the US economy by describing the various types of financial markets, financial instruments, and financial institutions or intermediaries that exist.

Here, it discusses debt versus equity markets, primary versus secondary markets, exchanges versus over-the-counter markets, and money versus capital markets.

The various types of financial instruments, including both money market instruments and capital market instruments. The special role played by financial intermediaries in the economy.

Lecture notes in Money, Banking and Finance

Here, it describes how financial intermediaries take advantage of economies of scale to reduce trans- action costs, how financial institutions assist in the process of risk sharing and diversification, and how financial institutions overcome the problems of adverse selection and more hazard. The major types of financial intermediaries, including depository institutions bankscontractual savings institutions, and investment intermediaries.

As we go along, we can always refer back to this overview to recall how a particular type of financial instrument works or what a particular type of financial intermediary does. Households Funds 1. Businesses 2. Governments 3. Households 4. Foreigners 4. Examples: Government and corporate bonds.

Example: Corporate stock. May pay regular dividends. Have no maturity date; hence are considered long-term securities.

A key feature distinguishing equity from debt is that the equity holders are the residual claimants: the firm must make payments to its debt holders before making payments to its equity holders. Advantage to holders of equities: Receive larger payments when the business becomes more profitable or the value of its assets rises. Disadvantage to holders of equities: Receive smaller payments when the business becomes less profitable or the value of its assets falls. Note that the originally issuer or borrower receives funds only when its securities are first sold in the primary market; the issuer does not receive funds when its securities are traded in the secondary market.

Nevertheless, secondary markets perform two essential functions: They allow the original buyers of securities to sell them before the maturity date, if necessary. That is, they make the securities more liquid. They allow participants in the primary markets to make judgements about the value of newly-issued securities by looking at the prices of similar, existing securities that are traded in the secondary markets.

Example: New York Stock Exchange. Currently issued with maturities of 1, 3, and 6 months. Make no regular interest payments, but sell at a discount. Trade on a very active secondary market. Are the safest of all money market instruments, since it is very unlikely that the US Government will go bankrupt.

Make regular interest payments until maturity. At maturity, return the original purchase price.

Money & Banking - MGT411 VU Video Lectures

Commercial Paper: Short-term debt issued by corporations. Make no interest payments, but sell at a discount.Secondary functions Suppose there is an initial deposit of Rs. All the transactions are routed through banks. The borrower withdraws his Rs. The Bank receives Rs. Again the borrower uses this for payment which flows back into the banks thereby increasing the flow of deposits.

Why only a fraction of deposits is kept as Cash Reserve? Reserve Bank increases CRR during inflation and decreases the same during deflation. SLR is increased during inflation or excess demand and decreased during deflation or deficient demand. Reverse Repo Rate : Securities are acquired by the RBI from the commercial banks with a simultaneous commitment to re-sell them to the commercial banks at pre- determined rate and date.

Login New User. Sign Up. Forgot Password? New User? Continue with Google Continue with Facebook. Gender Male Female. Create Account. Already Have an Account? Full Screen. All you need of Commerce at this link: Commerce. The value is usually called as price. After knowing the value of goods in single unit price exchanges become easy. Value of money remains more or less constant compared to other commodities. Money has the merit of general acceptability.

Money is more durable compare to other commodity. It is easy and economical to store.

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Value of money remains relatively constant. It also encourages capital formation. All depositors do not withdraw the money at the same time. There is constant flow of new deposits into the banks. Central Bank is obliged to back the currency with assets of equal value usually gold coins, gold bullions, foreign securities etc.

Accepts receipts and makes payments for the government. It also gives loans and Advances to the government.Why Study Financial Markets? Financial markets channel funds from savers to investors from those who have an excess of available funds to people who have a shortagethereby promoting economic efficiency 2. Financial markets are a key factor in producing economic growth 3.

Financial markets affect personal wealth and behaviour of businesses 3. A security financial instrument is a claim on the issuers future income or assets. A bond is a debt security that promises periodic payments for a specified time the bond market is where interest rates are determined. An interest rate is the cost of borrowing or the price paid on the rental of funds 5. Different interest rates have a tendency to move in unison Figureperhaps because of this correlation of interest rates economists frequently lump interest rates together and refer to the interest rate.

Short-term interest rates tend to fluctuate more and are lower on average than others 6. A stock is a security that is a claim on the earnings and assets of that corporation.

Chapter 1 (Money & Banking)

The stock market is also an important factor in business investment decisions because the price of shares affects the amount of funds that can be raised by selling newly issued stock to finance investment spending daily vote of confidence.

The stock market is a place where people get rich and poor quickly with considerable fluctuations in stock prices, which affect the size of peoples wealth and their willingness to spend Figure 9.

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Financial Intermediaries - institutions that channel funds from people who have saved to parties who wish borrow indirect finance. Financial Crises disruption of the financial markets that lead to decline in asset prices can cause significant shortterm disruptions in the real economy non neutrality. Money anything that is generally accepted in payment for goods and services or in the repayment of debts.


Recessions unemployment and booms inflation lead to changes in aggregate economic activity. Monetary Theory relates changes in the quantity of money supplied to changes in aggregate SR real economic activity and the price level Every recession in the 20th century has been preceded by a decline in the rate of money growth, indicating that changes in money are also a driving force behind business cycle fluctuations but not every decline in the rate of money growth is followed by a recession.

The Canadian recession that started in late is sort of an exception while preceded by such a drop - it started with a financial crisis in the US The money supply and the price level generally move closely together QTM implies the continuing increase in the money supply might cause the continuing increase in the price level, Figure Inflation is always and everywhere a monetary phenomenon Milton Freidman, Figure Prior tothe rate of money growth and the interest rate on longterm bonds were closely tied Fig Since then, the relationship is less clear but still an important determinant of interest rates especially long-term rates Fisher equation Monetary policy is the management of the money supply and interest rates Conducted by the Bank of Canada.

Deficits increase the national debt and make it vulnerable to increases in world interest rates Some believe the ability to issue public debt allows the government to smooth taxes and inflation over time Large budget deficits might lead to a financial crisis and result in monetization of debt a higher rate of money growth, a higher rate of inflation, and higher interest rates.

The foreign exchange market is where one countrys currency is exchanged for another. The exchange rate is the price of one countrys currency in terms of anothers i. Throughout this course, the exchange rate is normally expressed as units of foreign currency purchased per Canadian dollar Nominal appreciation depreciation is a rise fall in the value of a countrys currency in terms of units of foreign currency it can purchase.

money and banking lecture notes ppt

Changes in the exchange rate have direct effects on Canadian consumers because it affects the cost of foreign goods. A stronger dollar benefits Canadian consumers by making foreign goods cheaper but hurts Canadian businesses and eliminates some jobs by cutting both domestic imports are cheaper and foreign our exports are more expensive sales of their products Larger capital flows between countries Greater importance of foreign financial systems on domestic economy.

Potentially larger role for international institutions e.


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