Answer to the question no.

1 (a)

Answer to the question no.1 (b)

Differentiate between Money and capital market:

 Money market: the money market is a financial market in which only short term debt
instruments (generally those with original maturity of less than one year) are traded.
Money market securities are usually more widely traded than longer term securities and
so tend to be more liquid. The money market is the trade in short-term debt. It is a
constant flow of cash between governments, corporations, banks, and financial
institutions, borrowing and lending for a term as short as overnight and no longer than a
year.

 Capital market: The capital market is the market in which longer-term debt (generally
those with original maturity of one year or greater) and equity instruments are traded.
Capital market securities, such as stocks and long term bonds, are often held by financial
intermediaries such as insurance companies and pension funds, which have little
uncertainty about the amount of funds they will have available in the future. The capital
market encompasses the trade in both stocks and bonds. These are long-term assets
bought by financial institutions, professional brokers, and individual investors.

Answer to the question no. 2 (b)

Money definition: Money refers to anything that is generally accepted in payment for goods and
services or in the repayment of debts and is distinct from income and wealth.

Functions of money: Whether money is shells or rocks or gold or paper, it has three primary
functions in any economy: as a medium of exchange, as a unit of account, and as a store of value.
Of the three functions, its function as a medium of exchange is what distinguishes money from
other assets such as stocks, bonds, and houses.

Medium of exchange: In almost all market transactions in our economy, money in the form of
currency or checks is a medium of exchange, it is used to pay for goods and services. The use of
money as a medium of exchange promotes economic efficiency by minimizing the time spent in
exchanging goods and services. To see why, let’s look at a barter economy, one without money,
in which goods and services are exchanged directly for other goods and services.

Unit of account: The second role of money is to provide a unit of account; that is, it is used to
measure value in the economy. We measure the value of goods and services in terms of money,
just as we measure weight in terms of pounds or distance in terms of miles.

Store of value: Money also functions as a store of value, it is a repository of purchasing power
over time. A store of value is used to save purchasing power from the time income is received
until the time it is spent. This function of money is useful, because most of us do not want to
spend our income immediately upon receiving it, but rather prefer to wait until we have the time
or the desire to shop.

Answer to the question no.3 (a)

Yes I do support this agreement. The only way to achieve handsome amount of profit compared
to similar kind of organizations is to established skilled and efficient management in any
organization. Bank is a profit oriented organization; therefore its management procedure is more
challenging as regulatory system always is there to control the bank management. Following
diagram shows how the bank management becomes more challenging over time.

1. Changing regulation for banks: Bank regulatory authorities are more careful to prevent
bank failure, to ensure the safety of the fund of depositors, and to ensure loan distribution
for all. Moreover, everyday government in any country directs to rule & regulations for
keeping the currency stable and modernizing the bank management in order to protect the
interest of the depositors. Some of the techniques followed by the bank regulatory
authorities to control over the activities of commercial banks are:
 Direction for the right price of bank services.
 Introduction of deposit insurance.
 Direction for adequate liquidity.
 Direction for capital adequacy.
 Direction for approval & non approval of bank loan operation.
  Recruitment of directors, and direction regarding recruitment & directing their duties and
responsibilities.
 Loan supervision, review and examination.
 Direction for adequate reserve, etc

Day by day bank management becomes more challenging by introducing rules & regulations by
bank regulatory authorities.

2. Increasing competition due to changing technological development: number of served

clients and quality & dimensions of services are the basis of competition. The bank,
which provides better service with high quality, is capable of being successful in
competition. Two banks jointly create new services that provide the customers with a
sustainable competitive advantage. Why the new benefit or service that the bank offers in
unique and different from that of the other organizations requires the commercial banks
to participate in the multidimensional competitive environment. For example, the client
of one bank may go to another bank of the same locality just because of better service. A
bank employee knows that a service holder lives in Azimpur. He has no savings account
in any bank. The employee leaves the house of that service holder that day with the
information. Seven days later, the employee goes to the home of that service holder when
the person stayed in office. The employee introduced himself with the person’s wife. The
employee asked the lady whether that houses their own house. The lady replied no, then
the question arose, what was the source of house rent. The lady replied that her husband’s
office paid the house rent. Then the banker asked if the office would pay house rent after
the retirement from job. The answer was automatically no, then the question arose where
they would live after retirement. The lady answers that they would go back to her father-
in-lows house. The employee advised the lady to get the loan from bank. The lady agreed
with the proposal of the employee. The employee arranged a system, which divides
monthly expenses in four parts and a portion meant four thousand taka, which should be
kept in bank account. This arrangement called for that the deposited amount along with
the interest after two years would be used to get loan which would be used to purchase a
flat worth of taka 11 lac from “property development”. The lady agreed with the proposal
and started depositing taka 5000 per month by opening an account in her name. the
banker kept his promise and after two years, he helped the family to awn a flat. This story
proved the fact that bank management is becoming more and more challenging with the
increase in competition. The banker persuaded the lady to deposit savings and become
owner of a house not because he was kind to her but because he was assigned to fulfill
deposit and loan targets resulting from serious competition. So, in order to withstand
competition bank management needs to innovative and challenging.
3. Changing industrial relationship: In international banking business, the bank faces
extensive amount of legislation in the event of a new problem. Internationals relations,
global or bilateral, create more competition in banking business. Other factors, such as
changes international trade and commerce, laws of fund transfer, change in social and
cultural factors establish new operational management system which challenges the
banking business.
Answer to the question no.3 (b)

As a deposit handing officer in commercial bank, I will make possible of a very good
combination of deposit in my branch is following way: deposit mix is the combination of total
deposits of the bank with different kinds of deposit. This is very useful in order to have stable
funds for better bank management. The nature of deposit mixes are mainly in three kinds:

1. Ownership mix of deposit

2. Types of deposit mix
3. Size mix of deposit

Ownership mix of deposit: Individuals, business firms, industrial organizations, government,

foreigners (institution as well as individuals) can be the owner of the deposits. Pattern of deposit
or withdrawal of each owner in different. So, it is risky to maintain the deposit considering only
one kind of depositor. Depending on the ownership, the nature of withdrawal amount and the
number of withdrawal in a certain time interval differs. So, different types of owners help to
maintain balance in the deposits transactions towards a stable fund to be used to profitable
utilization. That is bank minimize the potential risks by collecting deposits from diversified
segment of the population, like the people with different professions, different government, non
government organization and business house etc.

Types of deposit mix: Deposits are of three types- savings, current and fixed deposit. In case of
savings account, the frequency of deposit and withdrawal is more in number but the size of
amount is usually smaller. It is just the reverse in case of fixed deposits. But current deposit
holders are very frequent in both making deposits as well as withdrawals. Their amount of
transactions is observed to be relatively larger. Bank may face problem if they emphasize only
on one type of accounts.

Size mix of deposit: Deposits may be small, medium, and large. Emphasis on any single size
again may out the bank into problem. This is the reason for which banks manage deposits on the
basis of deposit size. Banks give higher importance to the big depositors. Banks also persuade
and discourage the big depositors to withdraw large amount at a time. Banks offer different
incentives for small depositors. Small depositors are persuaded to keep their deposits at a higher
level. Banks also take initiative to impose legal restrictions on the number of withdrawal in a
week by the small depositors.

Management of deposit mix is not very simple and easy task. Theories or rules and regulations
are not so much effective in this case. Available behavior and indirect advice of the banks
officials influence the depositors a lot. Deposits should be managed by considering all of the
above mentioned three types of deposits mixes.