Chapter Name

4ONEY
Barter 6ystam
Tt reteus to dinect exchange of gocds and Senices
ongoode and Seryice
This o e(onomy is called Barter econamy
C-C eLonomy' (C stands_for commodity)
Limitations o Barter System
Lack of
double coincidence Lack o
o wants 4) Divsiblty
Lack ot
Lack ot Standaud of
2 store of walue 5) defered layments

Lack o. Lack of
3)unit of Aount (6)Trancfer o vale
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PAGES

Money may be dehed g.snythiog,

shich is qeneraly scepted as Cmedium af exchange
and eun't of ACcouht

fundions of Money
o Pimary Functions! (25econdary Functansl

at Mediom o exchage
payments
b Money as mensure o value
OR bt Store od value
Money Qs e unit t Aaount3
Transfer of value
 TE
STAGE

Explain functions o Money

I) Meaum Exchange
Money. asuseda medium
Can be
cl exchangemeans that it
to make ter all trana ers
paymbnts
and seuv>ces."

II) Measure c Vaue

Money as a mAsore value means that money

W0nKs as aCommon denaminalienin which valuEL
o al gocds and services are expresed.

TIMoney as a Ctore ol yalue

Moneyas a store of value meant that
(an be Lecd to tranfu
pxchasüng pe
atvu. Sinueii mett
Ilhuid asket and it can be eauily cCenyeuted
n other hings.

Good Write
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I) Money as the Standaud dglexad piym en
oney makes odyleuuud exchange pauy and eimple..
These paymentk" hich aue ta be paid in seme
utuue dat tikepayment of loanc,hctolrments eto.
UMeney atiltats these benuinge snd lencitgt

Mney make tansfer ef vale guods and seuues

vey' simple a # tan be hnsfeucd Casily om
ene Place to a lavge dis tonted place.
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ypes of Money
0Fat Money
Aflat monéy s a type t ckDcy
Hhat B aleclaxd lgal tend au by a
gsuunment but ha: Vnr fatinai cfied
yalue and i not backad by any targible
aSset, Such as

Money hich lan be kgally ad h make

teumed ak Jegal tender maney
Fiauciary Money
fayment eh the báui sñ tuat not
is knsusn ca
Cxanple
Laucoy menty
chehLe, kankootes aid duafts.

Hgh bcweMed mopey i oney produied

lsency held by the

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O Money Supply may be defthed as the tota!

Stock s meney held uth public at a
pariula point s tine n an eLonomy.
It s measured A M, = CC+ DD+ D

Components of Mohey bupply

ciuculation Demand deesit

uuith public 2 Comnscal Banks
CC) (DD)

Dthen depasik
aLith
Rekeye Pank

tOD)
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çhapter slame
BANKIN
AGommercial Banks
Tt refers to the inandal Institutien ohch acepik
Cepostt rom publk snd provfae loan ta puble.
They 'also cutate móney and prkide cheqyue focdity

AGentral Bank
The Centuol Bank iss the aper monetaxy psthilon
hith Conitgeks he entire meney ond konking sukm

Funcifons of Central Bsnk

(urrency Authoity OR Bank of isue
2 Bankex's Bank and Supervisor
(Govexnment's banker, a9ent2 advispr

4 (Lender ot ast Resast

5 usto dian oh fuyn Kchange rseves nd nation's gold)

(Cet trolle ot cuct& money suPP
Good Write Cearing ttouse funchen.
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brgbain Anctans dCanial bark

DR
roencyl
umenaOR Aucthonisy
Bank Ssue
The cental Bank hai aa lsgal iightto iasue
CUBHObcy nctes (except ene- nhee natex and Laink
colnk
fsued by inance mini tuy . The cental cen tral bank
issues thot value of cuseocy oich i egual
and
Thclia

I) ZAnken Bank and Supervisor

The ene the man oluty sf a_ Lontual bank
to ugulat and supeutße" the proper functioning
ot cotomeucial Bank'tThe central'Baßk ott
LX bot.
Bank B commeucal banks as ft occepts the
othex depesits te banke_piovfdé loans CRRand
o the
Cenimacial banks
mSupeuuiso & the (emouclal kasks_ait qdes
Hhe cemeCfal bank ad cus 4e them
about
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Ccuenments bank8gent snd adisan

O The (entual Bank acts as a banken i the
QDInt hetaLse it aLeph the cepexitk ef
heathe ainduty s the centaal hankK to
dpautmenti
ouLsDmt as itpoudes yaitsus
to the ke ental bouk manags the pbl
debt
DThe
D Contual Bank cte as an adisy t tbe

end taa Stat nasket

) Lender o last Rekezd

) As the lendex laat eSQthe contial bank

(i iguidit
athep Cemaciol bnks ado Dot gitlouo locithea
many ate
Bank ad o
caced, ttay cpalaach
destust TheCnthal bonk
ta Cantial
aduanloanto suchbanksbanks cgaümkt agpssuad
Thus, the Cntyal ban act dd a
lender he lat Reuet
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The
kept in the uatody o fe cntiol Bank A
he sign Lwena daied by the citen of a
to be depaited with the centr al bask
and i< he ant to'make p8ynenq n fesn
awkency he has to spply o the centhal bank

Lochelley Mcney bpply

enitial
The centual Bank has the pwen to centsl the
a commnen ciàl bank Qs itt decides
tte CR and it eitusls the moay supply
hulp change o CRR , SLR,Bonk at and othes with the
fnituhunk o the meruy dpply. The main oferive
u manay cupply lto "bung puite stabitAy
eLememy

Good Write
 Gredit Cantro PAGE

Gnstrumerts of RET3
Suantitate Bualiatiye
methoas hmethods
TRepo Rate Narn
eaireernt
a Bank Rate
2
ReveSe Revorat Morat
a SU&SIOn
4Open market 3 Splectiye
operaions
Daines
A: Cash Reserye Ratio CCAR)
he total depos Ceahescisl bank:'hfs tey
bank ef he

B- Statutory 'uidly ratlo tsuR)

Re<exs to hat pasdt f the toal degestt e te
Cemmucl banki ih they haw ta Reep luitA
themseles in the

Legat heserve Ratio (LRR)

legal Keeuue
Reseee
the bonks T he sun e
CRR cnd sLR

DBank Rate
Bank Tote ule th the Mati at hlh he
Caibial Ronk PLQLttesdeng texm doans o the
Comneciol banks.
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,PAGE

E fepo kate
epo ut uus to he eate at wfhih contral
BankpDle shot-teumloans to te
laymeYCfal bonts

F Reverse Repo Rate

Beyense Kepo Kate ufe to te freat ate
commercil
given, by cantual bbak the
panks en hely cepssis nak with the (wiral
bank
OR
Reueee po Hate depesih f cenmmecal
Cntal badk accept
aLapt the
the depesit
banki.

GMargin Rezuirement
Tt refeu! ito the difeunce bitauen the yalu
Loan yiren by Bank
HDenana derastts
These cepesit hih ue payable en denond
tolleg olem anad
 àQpen Market Operatias
Ihe open macket operaton refeus b sale and
puchise
mautet t, UCemmeHciol banks and geDeual
publt by te untual bank a ctnty.

When there is delation in econonN

Alhen theHe deatien in an Lieneny theps
ntal bank buy the
;emmeil bank
DAill iocuase te cash cait Cemmesclal bank
and gutal publie tfence, meney suppy ixreae
When theeisunfatin in econaaN
Tn te stuatin af hlatente Luthal kask
eument lseitea nd absObs the
ash uen the eLenny. H educed he meny
CREDIT
MCaEATIO
tDATE

Using numuicalexample
The lsecd't LLealion is ndewatood os the
uitial
heborkprocex ef
can be
ucdit csuaten by Cermmenial
erplaned with he help ot
) Legcl Keeene Ratio LRR)
thdt mininum pant ef to tul deposik o
cemmencl bank' which thy wteLgay
This lan be eplained ah th the help ee4 an
ingginasLy example t, we Spose the
LRR V20 and iniial cepssH lo00, then
pble eplains he cueit Cua teni
Depcsits (in Loans (ina) LRR in )
(000 e800 200

800 640 /60

640 128

5,000 4,00o
Good Write
 O) PAGE :

Suppse+ neLo cleppsit bf l000 s made in

barki Then the bahke aell! RaLsuTale Loans
clecuc ting Q00 as LRR i:e loana A
&o0. Nos it Îs belleved that the boncE
ull spend the entue ameunt oof lo ans and the
h amsurt enm bopo ey wsil!
lepait he enliu ambunt foto banks
means banki e l get anotheu depssit
depE01
T6to, hese apaib ale huatng at a
ate
theu Yuill btenme iehkally Zéro. The uo
all ultinatly beceme
5000 alpesit.
7his amount total deposit tan be nmeosurl
the helpof menay multijles
Tol deposit suatien = inifial deposits
000 =R5000
O'2
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How is meney tuaton

Cemmycial bankAkel to
hy
lect he Naianal hcese P
Explan.
Ecomanian

Since, untual bank is.

haviný monapely of pinlag
aoitid uith
(ue atee Meney and centibutes to he money sUppy
eatu luait in he dene that it glve me
Loang than the cash olpaiit ucafred 4uem
ualien by central Bantalect the oatonal
by Cnsasing he aggu tt adenkhd. hi neney
Suatien by cemnenbal bankA eault fo inetkse
investes people
ill ahouseheld cnsumaa froduens.
nvest hin CHudit monay in prpdutien akile
hausch ald
In thi
Hhashy natinal
 Distinguah between ) PAGE

Comiverda ank and

Central Bank
Crmmerfal Bank Central BanK
Basts
Lchiezlive
taun prelit buing elenrnalt stabl
THis iust an Ti the qpex hody
2| tats lunit sf banking and Centel entiá
lCemmeuâl banksl A Lentyal hank
3humber may be many k ne i Dumbey
innumbas.
ACemmtial bank Tt had ao diet
4Rekatienu mairtainn dbut elotiens uth
uth people relatien lth publle.
publi

5IRolatiensbaak may be io
 ^ Monetary folicy made
This montauy paliy ufers t
Banksulatdthe,
to paliy
bå the anta

Gnstruments
hwonetaYpoli
Quantitative Qustitative
I Repo Rate
2 Bank Rate
Margia kayirreai
3 Revese Repo Rate Moral suâson

4Legal Reserve Ratio.

S Open Maxket Opexattons
6 5LR CRR
 banks
the sppy
mnty
h
cempiexcal'
Moralogpeal
foxejul
5ASien
yhechange
thetoContuall
bank
Tt tithe
torefex
elatd