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Nature & Function
Any thing generally acceptable as a means
of exchange and at same time acts as a
measure & store of value is money.

Money is anything which is widely accepted
in payment for goods, services or discharge
of other kind of business obligations
Near Money & Money Substitutes

Assets which can be easily converted into
money without loss called Near Money
or Money Substitutes
These are Debts of Financial Institution or
Federal government.
Saving Deposits-Shares-Claims-Treasury
Bills-Bill of Exchange
Are Near Money or Substitutes
Currency notes, Coins, Demand Deposit

Near Money
Bill of exchange
Government Securities Saving and time
Liquid Money
These are claims to money and
readily converted into cash.
Government Deposit Certificates
Treasury Bond
Company Shares
Standard Unit
It is a standard unit of account
where all prices are standard
in money terms.
It has no power to act as a
Money & Price Mechanism
All incomes and price measured.
Economics decision of what, where and
hot to produce are implemented through
Importance in Production
Procurement of Material
Combine different factors of production
and make payment against the factors
Cost of production, lending, borrowing,
pricing, profits,
Importance in Consumption
Importance in Trade
Importance in distribution
Saving and investment
Money and Public Finance
Social Importance
Political Progress
Index of Growth
 Money attract People & people do
almost anything for money.
 Whereas money will do almost
anything for people.
 It is money which feeds you, clothes,
shelter, amuses you, helps you in
trade and industry
Origin and Growth
Money is development of necessity.
In long process of evolution since Adam & Eve
reaching to this modern complicated system.
Money removed difficulties of direct exchange of
goods for goods and serve as a unit of account
an medium of exchange
Money early shape is cows, goats, fish, battle
axes, knives, arrows, furs, wheat these have
storage, durability, divisibility, malleability,
homogently and transportation problem
The Next Step of Development
 Search to ease difficulty of first stage lead to
discovery of precocious metals gold, silver &
 It had difficulties of weight measures and value.
 Transportation of precious metal in shape of
money was dangerous.
 No guarantees of weight

Full bodied coins also proved a failure as
good for medium of exchange
Paper Money
 Origin of paper money found in receipt of
goldsmith which they issue to their clients.
 Receipt had weight and the value of goods
deposited by clients duly endorse and
authenticated by Goldsmith.
 These receipts become credit instruments and
were freely used for making payments.
 In 19th Century all the commercial banks issued
notes which now called as paper money.
Money Evolution Stages
Traditional Economy
2. Animal Money
3. Commodity Money
4. Metallic Money

Modern Economy
6. Paper Money
7. Credit Money
Static Functions
 Money is Medium of Exchange
 Money represent purchase power
 Accepted in exchange of goods & services
 It overcome defects of barter system
 Serve common measure of value.
 Yardstick of value and commodities
 Standard of deferred payment when
business is done on credit
 Money has store value
 Money serve as time transfer, place
transfer and person transfer of purchasing
 Money is source of prosperity and crime

But what cannot be purchase and
sold through money is love,
emotion, brotherhood, natural
blessings, life, breathing.
Dynamic functions of money
 Money has to potential to influence economy,
price level, interest rates, profits, utilization of
 Aid to specialization, production and trade
 Influence Income and Consumption
 Instrument of making loans and financing
 Tool of Monetary management
 Instrument of economic policy
Banker & Customer
 A bank is an institution transacting money
matter taken from its customers repayable
to customers' thorough Cheques.
 Banks collects Cheques for its customers'
 Banks issue currency notes.
 Lend money to customers called overdraft.
 Accept term deposits and make term loans
 Banks that issue notes are Central Bank
of State and called issuer of currency.
 Bank provides financial services to
consumers, businesses & governments.
 Banks require a license which issued by
regulatory authorities that give rights to
conduct fundamental banking services
like accepting deposits and making
 Word bank is derived from Italian
Banco, which is derived from a German
language and means Bench
 The terms Bankrupt and Broke are
similarly derived from Banca Rotta
which refers to an Out-of-Business
 Originally money lenders in Northern
Italy did business in open areas or big
open rooms, with each lender working
from his own bench or table.
 Banks have a long history and have
influenced economies and politics for
 Traditionally a bank generates profits
from transaction fees on financial
services and from the interest it
charges for lending.
 Bank is the major source for the
economic development.
Commercial bank
 It is a financial intermediary that raises
funds by collecting deposits from business
and consumers via checkable deposits,
savings deposits and time or term deposit.
 It makes loans to businesses & consumers.
 It also buys corporate bonds and
government bonds.
 Primary liabilities are deposits and
primary assets are loans and bonds.
 Term "commercial" used bank to
distinguish from investment bank.
 In some English-speaking countries
outside North America, the term
"trading bank" was and is used to
denote a commercial bank
 Banks' activities characterized as retail
banking, dealing directly with individuals
and small businesses.
 Investment banking relating to activities
on the financial markets.
 Banks are private enterprises and some
are owned by government
 In some countries retail and investment
activities are separated by law.
Central banks
 Non-commercial bodies owned by State
having controlling interest rates and
money supply across the whole economy
of the state.
 Act as Lender of last resort in event of a
 Supervisors of financial institutions and
Who is Banker?
 A Banker is a dealer in capital or
in money.
 Banker is an intermediate party
between borrower and lender.
 He borrow from a party and
lend to another party.
Person maintain regular account with
bank without considering duration
and frequency of operation.

Should deal with bank in its nature of
regular banking business.
General Relationship between
Banker and Customer
 Customer brings bread & butter of banker.
 No banking is without a customer.
 Customer act in various status and
categories whereas the banker provide
financial services in different ways.
Debtor & Creditor
 Customer deposit money and bank become
debtor to customer.
 Customer expect his money deposited, remain
safe at the bank and with the banker.
 Money placed at the bank should have increase.
 If customer is advanced then banker become
the creditor and customer is the debtor
Types of retail banks
 Community development banks are
regulated banks that provide financial
services and credit to underserved
markets or populations.
 Postal savings banks are savings banks
associated with national postal systems.
 Private Banks manage the assets of high
net worth individuals.
 Offshore banks are banks located
in jurisdictions with low taxation and
regulation. Many offshore banks are
essentially private banks.
 Savings bank take their roots in the
19th century with objective to
provide easily accessible savings
products to all level of the
In some countries, savings banks
were created on public initiative,
while in others socially committed
individuals created foundations to
put in place the necessary
 Building societies and Lands banks
both conduct retail banking.
 Ethical banks are banks that prioritize
the transparency of all operations and
make only social-responsible investments.
Industrial Bank
 These distinguished from commercial
bank because industrial banks accept
deposits in addition to making consumer
loans to Industries.
 Industrial banks do not offer demand
deposit (checking) accounts.
 Industrial banks are not regulated by the
Federal Reserve.
 Insurance Company provides
compensation based on the happening of
one or more contingencies.
 Investment Bank/Company Acts as
underwriter or agent that serves as
intermediary between issuer of securities
and the investing public.
 Mutual Savings Bank A financial
institution that accepts deposits primarily
from individuals and places a large
portion of its funds into mortgage loans.
National Bank
 A commercial bank whose charter is
approved by the Office of the
Comptroller of the Currency rather
than by a state banking department.
National banks are required to be
members of the Federal Reserve
System and belong to the Federal
Deposit Insurance Corporation.