Professional Documents
Culture Documents
AND FINANCE
Lecturer:
Abdinasir Ahmed Ali (BIT, MFB, )
Email:/FB abdinasir1989@gmail.com
Tell: 0615024949
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Chapter five
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Learning objectives
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5.2 What are the main functions
of a central bank?
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Continue….
The central bank controls the issue of notes and coins
(legal tender).
It has the power to control the amount of credit-money
created by banks.
A central bank should also have some control over non-
bank financial intermediaries that provide credit
Encompassing both parts 2 and 3, the central bank should
effectively use the relevant
tools and instruments of monetary policy in order to
control:
a) credit expansion;
b) liquidity; and
c) the money supply of an economy
The central bank should oversee the financial sector in
order to prevent crises and act as a lender-of-last-resort
A central bank acts as the government’s banker
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Functions of Central Bank
Central Bank
Traditional Non-Traditional
Functions Functions
Primary Secondary
Functions Functions
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Functions of Central Bank
• Traditional Functions : Which are generally
performed by central banks all over the world,
are classified into two groups;
– Primary Functions: including issue of notes,
regulation of financial system, and conduct of
monetary policy
– Secondary Functions: including management of
public debt, management of foreign exchange,
advising the government on policy matters, and
maintaining close relationships with the
international financial institutions
• Non-Traditional Functions: these functions are
performed by the State Bank include
development of financial frame work,
provision of training facilities to bankers, and
provision of credit to priority sectors. 1-8
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Primary Functions
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5.3 How does monetary policy
work?
Monetary policy;
fiscal policy;
exchange rate policy;
prices and incomes policy;
and national debt
management policy.
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1. Monetary policy is concerned with the
actions taken by central banks to influence
the availability and cost of money and
credit by controlling some measure (or
measures) of the money supply and/or the
level and structure of interest rates.
2. Fiscal policy relates to changes in the
level and structure of government
spending and taxation designed to
influence the economy
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Exchange rate policy involves the targeting of
a particular value of a country’s currency
exchange rate thereby influencing the flows
within the balance of payments.
In some countries it may be used in conjunction
with other measures such as exchange controls,
import tariffs and quotas
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Continue….
Payment services
Deposit and lending services
Investment, pensions and insurance
services
E-banking
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2.3.1 Payment services
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Types of cashless payments
Credit transfers (or Bank Giro Credits) are payment where the
customer instructs their bank to transfer funds directly to the
beneficiary's bank account.
Consumers use bank giro transfer payments to pay invoices or to
send payment in advance for products ordered.
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Continue…….
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Credit cards
Credit cards provide holders with a pre-arranged credit
limit to use for purchases at retail stores and other
outlets.
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2.3.2 Deposit and lending services
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2.3.3 Investment, pensions and
insurance services
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Pensions and insurance services
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Insurance products
Insurance products protect individuals (policyholders)
from various adverse events. Policyholders pay
regular premiums and the insurer promises
compensation if the specific insured event occurs.
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2.3.4 E-banking
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Figure 2.2 A definition of e-banking
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2.4 Current issues in banking
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2.5 Responses to the forces of change
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Revision questions and problems
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