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First of all I would like to thank Allah as finally I have done the assignment or report on State Bank Of Pakistan.
And after that I would like to deeply appreciate and thanking you the services of our teacher Sir Kamran Razi, the teacher of Banking in Jauhar Degree College, for providing guidelines and giving hints.
State Bank Of Pakistan History Or Background
Before independence on 14 August 1947, the Reserve Bank of India (central bank of India) was the central bank for what is now Pakistan. On 30th December 1948 the British
Government's commission distributed the Bank of India's reserves between Pakistan and India- 30 percent (750Mgold) for Pakistan and 70 percent for India. The losses incurred in the transition to independence were taken from Pakistan's share (a total of 230 million). In May, 1948 Muhammad Ali Jinnah (Founder of Pakistan) took steps to establish the State Bank of Pakistan immediately. These were implemented in June 1948, and the State Bank of Pakistan commenced operation on July 1, 1948 .
Mission & Vision
To develop SBP-BSC into a dynamic and efficient organization equipped with requisite technology and human resource capable of extending sustainable support to the State Bank of Pakistan in achieving its objectives (SBP website).
To provide excellent banking and financial services to stake holders besides ensuring implementation of SBP policies in order to command their trust and respect.
Functions Of State Bank Of Pakistan
1.Issue Of Currency:
This is the first important function of a central bank by which it enjoys monopoly for the issue of currency notes. In order to inspire public confidence in paper currency it is backed and covered by an asset of equal value. These assets may be gold, foreign currencies or government securities.
2. Banker To The Govt.:
1. Keeps deposits of Govt. departments. 2. Receives taxes and other revenues on behalf of Govt. 3. Makes payment of Govt. employee's salaries. 4. Makes and receives payments from other states. 5. Provides short-term loans. 6. Keeps all foreign exchange reserves of Govt. 7. Keeps all the Gold reserves of state. 8. Manages public Debt by selling new issues and redeeming Treasury bills, Govt. securities and bonds. 9. Acts as Financial and Economic Advisor to the Govt. 10. Provides research and banking training facilities.
3. Banker To Commercial Banks:
1. It issues licenses and allows banks to perform banking function. 2. 2. It keeps cash Reserves of commercial banks. Every bank is required to keep a fixed portion of its total deposites as reserves with Central Bank. Presently cash reserves requirement is 5% on weekly average basis subject to daily minimum of 4% of Time and Demand liabilities. 3. It acts as Lender of the last Resort. Central Bank provides financial assistance for emergency requirements of banks by re-discounting their commercial bills. 4. It performs Clearing House function for banks. Banks keep their cash reserves with central bank. The transactions between banks are settled and cleared through these reserves by central bank by means of debits and credits in Books of Reserve Account. If people withdraw their money from a particular bank then cash reserves of that bank with central bank reduces to that extent. Flow chart structure of clearing of cheques.
4. Maintenance Of Exchange Rate:
Central bank not only keeps reserves of foreign exchange of country but it also determines and maintains foreign exchange rate of nation's currency. In order to maintain external value of Pak Rupee and stable exchange rate it buys and sells foreign currencies at a rate fixed by it.
5. Acts As Controller Of Credit:
This is the most important function of Central Bank. It regulates the volume, direction and credit operations of commercial banks through its Monetary Policy. According to Monetary Policy 2012 the interest rate for commercial banks is 10.5%.
6. Promotion Of Economic Development:
It makes such policies that help in development of industry, agriculture, construction and other sectors of economy. It provides financial assistance to all sectors of the economy. The most important function of State Bank Of Pakistan is to maintain the level of import & export through supply and demand of products in foreign countries.
7. Research And Statistics:
Central Bank collects, compiles and maintains economic date of the country. It publishes research and statistical reports pertaining money, banking, foreign trade and economy of the country. Annual Report of State Bank is very important and authentic book on the economy of Pakistan.
Major Role Of State Bank Of Pakistan At The Time Of Inflation & Deflation
Inflation is an expansion in supply of money relatively to the supply of goods and services to purchase. It is a situation in which average of all prices of goods and services rise. Inflation erodes the real value of money. Due to higher prices purchasing power of money reduces. State Bank Of Pakistan has a major duty to control inflation & deflation in the country. State Bank Of Pakistan measure inflation in that manner like. 1. Creeping inflation means when prices rise up to 3% per year.
2. Hyper or inflation means when average prices rise very rapidly. 3. Anticipated inflation is the rate of inflation, which majority of the people believes that it will occur. If rate of inflation in 2007 turns out to be 10% and it actually happens so then it is a fully anticipated inflation. 4. Nominal Rate of interest is the rate of interest that is written and expressed in contracts. This is a rate of interest that we have to pay on borrowed loans. 5. Real Rate of interest= Nominal rate of interest – Anticipated rate of inflation.
Nominal rate of interest, 15% - Rate of Inflation is 12% = Real Interest is 3%.
Rate of Inflation = Nominal rate of interest – Real rate of interest 15% -- 3% = 12% inflation rate
Gold is used to hedge against inflation: Investors typically buy large quantities of gold when their country is experiencing high levels of inflation. The demand for gold increases during inflationary times due to its inherent value and limited supply. As it cannot be diluted, gold is able to retain value much better than other forms of currency.
Causes Of Inflation:
Demand Pull inflation. Cost Push inflation. Famine / Droughts. Hoarding & Black marketing. Population growth. Increase in employment opportunities. Urbanization/ city way of life. Increase in Govt. Expenditure.
In deflation, general price level decreases (or value of money increases), therefore profit margin decreases and due to decrease in profit margins investments decreases, hence employment opportunities decreases. When there us general unemployment, it reduces effective demand for goods and services, therefore prices decrease further. In this situation there is an over
all deteriorating situation of the economy where industries suffer, people remain unemployed, no one borrows from banks and per capita income and standard of living of people deteriorate.
Effects Of Inflation And Deflation On Various Sectors
1. 2. 3. 4. 5. 6. 7. Poor people Pension holders Ordinary labor Creditors who had given loans earlier Debtors, who return loans Business men, Rich people Agriculturists
Suffer Suffer Suffer Suffer Gain Gain Gain
Gain Gain Gain Gain Suffer Suffer Suffer
Measures To Control Inflation And Deflation
1. Monetary Policy.
Monetary policy is the process by which the government, central bank, or monetary authority of a country controls the supply of money availability of money
cost of money or rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy.
2. Fiscal Policy.
Fiscal Policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. The two main instruments of fiscal policy are government taxation and expenditure. Changes in the level and composition of taxation and government spending can impact the following variables in the economy:
Aggregate demand and the level of economic activity; The pattern of resource allocation; The distribution of income.
Fiscal policy refers to the use of the government budget to influence economic activity. 3. Administrative Actions. Increase in industrial and agricultural output. Price Controls. Increase in imports Decrease in exports. Control on wages.
www.Google.com www.sbp.org.pk www.scribd.com www.wikipedia.org