money and banking ajahar husai ndim

04/12/2023MONEY & BANKING

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MONEY AND

BANKING


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AJAHAR 187 AMRITA 219JAYATI 214ABHISHEK 182SUSHEEL 178HITESH 213

• PRESENTED BY -


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CONTENTS

• DEFINITION OF MONEY• FUNCTION OF MONEY• KIND OF MONEY• MEASUREMENT OF MONEY• USE OF MONEY• CHARACTERISTICS OF MONEY• KEY TERMS OF BANKING• HISTORY OF BANK• ROLE OF BANK• TYPES OF BANK• BANKING STRUCTURE IN INDIA• IMPORTANTS BANKS IN INDIA• CURRENT ASSETS • CURRENT SHARE HOLDER EQUITY


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“Money is whatever is generally accepted in exchange for goods and services — accepted not as an object to be consumed but as an object that represents a temporary abode of purchasing power to be used for buying still other goods and services.”

— Milton Friedman (1992)

DEFINITION OF MONEY


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• anything commonly accepted

in exchange for goods/services• many objects throughout history


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examples

• livestock• metals• cigarettes• grain• shells


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money, income, & wealth

• money– what is accepted as payment

• income – earnings during time period (year)

• wealth– accumulated assets at pt. in time


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examples

• I own $2 million in diamonds. – I am wealthy– I have no money


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• I win $25 million in lottery• I quit my job

– I am wealthy– I have a lot of money– my income is zero


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• software engineer• earnings $100,000/yr

– high income– no wealth


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How does money serve the needs of our society?

• Money provides means for comparing values of goods and services.

• Money also serves as a store of value.• Without money, we wouldn’t be able to get the

things that we need and want.


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• A medium of exchange: an asset used to buy and sell goods and services

• A store of value: an asset that allows people to transfer purchasing power from one period to another

• A unit of account: a unit of measurement used by people to post prices and keep track of revenues and costs

• Money as a standard of deferred payment

FUNCTION OF MONEY


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Kinds of Money

Metallic coins1. Full bodied money coins2. Token coins

Paper money3. Representative paper money4. Convertible paper money5. Inconvertible paper money


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• commodity money:

It has its own value as a good

-- gold & silver coins


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• Fiat money:

No value other than fact that it’s accepted in exchange for goods and services


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• United States money today is fiat money, which has value because a government has decreed that it is an acceptable means to pay debts.– Citizens have confidence that the money will be

accepted.– Because the Federal Reserve controls the supply, it

remains in limited supply, which makes it valuable.


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U.S. money is fiat money!

• NOT backed by gold since 1934• coins do not contain silver


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Debit or Credit cards?

• NOT money• payment mechanisms that access money


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Measurement of Money

R.B.I. presented four measures in 1977. These are defined below in decreasing order of their liquidity.

The following measures of money supply are used by the R.B.I.


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M1

= currency in circulation

+ demand deposits

+ checkable deposits

+ traveler’s checks

$1.4 trillion


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M2

= M1

+ savings deposits

+ small time deposits

+ retail money market deposits

$7.3 trillion


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M3

= currency with the public+ Demand Deposits with banks+ time Deposits with banks+ other Deposits with the R.B.I.


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Components of M1

1%

23%

28%

48%

currency

traveler's checks

demand deposits

other checkable


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Components of M2M1

22%

small CDs20%savings

39%

money market19%


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Money Growth and Inflation


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Three Uses of Money

• Money is anything that serves as a:– Medium of exchange– A unit of account– A store of value


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The Characteristics of Money

• Durability• Portability• Divisibility• Uniformity• Limited supply• Acceptability


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Durability and Portability

• Durability• Money must be able to withstand

the physical wear and tear that comes with being used over and over again.

• Portability• Money must be easily carried by

people. Paper money and coins work because they are small and light.


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Divisibility and Uniformity

• Divisibility • Money must be easily divided into smaller

denominations.

• Uniformity • People must be able to count and measure money

accurately.


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What Makes Money Valuable?

• There are actually several possible sources of money’s value depending on whether it is commodity money, representative money, or fiat money.


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BANKING HISTORY


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The First Bank of the United States

• Federalists won the first debate and in 1791, Congress established the Bank of the United States. Yet, disagreements over the Bank continued.– Antifederalists argued that the Bank was unconstitutional

and that it did not benefit ordinary people, only the wealthy.

• The Bank functioned until 1811, when its charter ran out.– State banks then took over for the Bank of the United

States, which created a great deal of chaos and confusion.


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The Second Bank of the United States• To eliminate the chaos, Congress charted the Second

Bank of the United States in 1816.• Stability was restored but many were still wary of the

Bank’s powers.– In 1832, when

Congress tried to renew the Bank’s charter, President Andrew Jackson vetoed the renewal.


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DEFINATION• bank: an institution for receiving, keeping,

and lending money • national bank: a bank chartered by the federal

government• bank run: a widespread panic in which many

people try to redeem their paper money at the same time

• greenback: a paper currency issued during the Civil War


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• gold standard: a monetary system in which paper money and coins had the value of certain amounts of gold

• central bank: a bank that can lend to other banks in times of need

• member bank: a bank that belongs to the Federal Reserve System

• foreclosure: the seizure of property from lenders who are unable to pay back their loans


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ROLE OF BANKSPayment systemPay deposits on demandPayment through chequesFacilitate movement of moneyCirculatory system of the economyFinancial services providerProducts of mutual funds &insurance companiesCollection of utility bills


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• The banking industry includes:• commercial banks, • savings and loans, and,• credit unions.

The Business of Banking

• Banks are profit-seeking institutions:• Banks accept deposits and use part of

them to extend loans and make investments. Income from these activities is their major source of revenue.


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How Banks Create Moneyby Extending Loans

• The lower the percentage of the reserve requirement, the greater the potential expansion in the money supply resulting from the creation of new reserves.

• The fractional reserve requirement places a ceiling on potential money creation from new reserves.

• The actual deposit multiplier will be less than the potential because: • some persons will hold currency rather than

bank deposits, and, • some banks may not use all their excess

reserves to extend loans.


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TYPES OF BANKS

Commercial bank Government bankPrivate bankSaving bankCooperative bankInvestment bankSpecialized bankRetail bank


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COMMERCIAL BANK It helps to mobilize the saving of the communityTo make them available to the entrepreneursTo ensure safety with liquidityBank assures all the funds can be drawn back in case of

need


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Functions of Commercial Banking

• Banks provide services and pay interest to attract checking, savings, and time deposits (liabilities).

• Most of these deposits are invested and loaned out, providing interest income for the bank.

• Banks hold a portion of their assets as reserves (either as cash or deposits with the Fed) to meet their daily obligations toward their depositors.


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Commercial bank in india1950- 645 banks and 4,800 branch office

1969- 14 major commercial bank is nationalized

1993- 2 more bank merged

At present- 19 nationalized bank in india


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DRAWBACK OF COMMERCIAL BANK

Growth is less Regional imbalanceQuality service is poorNo proper experts to improve public sectors banks


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Government bank

government has a major stake usually need to emphasize on social objectives than on profitability.

Central bank , RBI

Private bank owned, managed and controlled by private promoters free to operate as per market forces .

City union , bank of rajasthan


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Financial institution that assists individuals, corporations and governments example - M&T bank

Investment banking

Governed by the provisions of State Cooperative Societies Act i.e., agricultural financing bank in India.

Cooperative bank


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CENTRAL BANKOther banks are largely profit seeking institutions ,the

Central bank is notIt acts as the organ of the stateOther bank have largely public dealing ,the central bank’s

dealing are with governments, central & state banks & other financial institutions


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BANKING STRUCTURE IN INDIA

The state bank of india & its associated banksOthers nationalized banksRegional rural banksPrivate sectors commercial banksForeign banks


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FUNCTION OF RBIIssue of currencyBankers to the governmentBankers bankCustodian of foreign exchange reserveController of creditPromotional function Collection & publication of data


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State BANKS assets

Switzerland USB 1533 billion

United state Citi group 1484 Billion

Japan UFJ 1296 Billion

United kingdom HSBC 1277 Billion

France Credit Agricola group

1243 Billion

Current assets of top 5 bank in world


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Country Company Share holder equity

United state Citi group 112537 $million

United state JPMorgan chase 107211 $million

United state Bank of America 101224 $million

United kingdom HSBC 98226 $million

Japan UFG 83281 $million

Top 5 banking group in the world by shareholder equity


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THA

NK

YO

U

money and banking ajahar husai ndim

Economy & Finance

money banking

uses of money money

fiat money

wealth money

portability money

representative money

commodity money

money valuable