Barter system
Barter exchange
It's refers to exchange of goods for goods
Barter economy
An economy where there is a direct barter of goods and services
Limitation Of Barter Exchange
A) lack of double co-incidence of wants
B) lack of common measure of value
C) lack of store of value
D) lack of standard of deferred payment
Money ;-
Money is anything , which is generally accepted as medium of exchange , measure of value , store of value and standard of deferred payment .
Money supply :-
- It refers to volume of money held by public at a particular point of time .
- It is stock concept.
Banking
Commercial banks
It is an institution which performs the functions of accepting deposit , landing funds and making investment with the main aim of earning profit
1) Primary functions
A) Accepting deposit
The main functions of a commercial banks is to accept various kinds of deposits.
-> Demand deposits
- Deposits repayable on demand
- No restriction on number of transactions
- Cheque facility available
- Business firms
- Not provided interest
-> Fixed deposits
- Amount deposited for a fixed period of time .
- Two transactions
- Cheque facility not available
- Household
- Interest rate higest
-> Saving deposits
- Combine features of demand and saving deposits
- Limited no. Of transactions
- Cheque facility available
- Household
- Interests is provided
B) Advancing of loan
Types of loan :-
-> cash credit;-
Loan given again + current assets
Interest is charged on amount actually withdrawn
-> demand loan
Loan which can be recalled by bank on demand .
-> short term loan
There are given as personal loans against some collateral security.
2) secondary function
-> Overdraft Facility
- A facility in which a customer is allowed to overdrawn has current account upto an agreed limit.
- Provided only to respected and reliable custoney for a short period of time .
-> Bills Of Exchange
A facility an which a holder of bill can get the bill discount with bank before maturity.
-> Agency Function
It includes.
- Transfer of funds
- Collection and payment of various item
- Purchase and sale of security
- Income tax consultancies
-> GENERAL UTILITY FUNCTION
It includes
- Locker facility
- Travellers cheque
- Letter of credit etc .
Money Creation Of Credit Creation
Through the process banks are able to create credit which is in far excess of initial deposit.
Assumption ;-
- Entire commercial banking system is one unite and is turned and banks
- All the receipt and payment are routed through banks
Money Multipliers
It refers to the amount of money that bank are able to create in form of deposits.
Formulla of money multiplier= 1/LRR
- TOTAL deposit becomes 5 times of initial deposit
- 5 times is the value of money multiplier
- Deposit creation comes to end when total revenue become equal to initial deposit.
Function of central banks
Central banks
- It is an open body that control operates regulate and directs the entire banking and monetry structure of the country.
- All the financially developed countries have their own central bank
- For example ;- rbi in India , bank of England uk ,federal reserve system in usa .
Functions
1. Currency authority / bank of issue
- Central Bank has sale authority for issue the currency in the country
- In India RBI issue currency ( except one rupee note and coin)
Advantages
- Leads to uniformity in note circulation
- En sure public faith
- It gave Central banks the power of influence money supply
2. Banks to the government
RBI acts as a banker agent and financial advisor to the government
As a banker
- Maintain a current account
- All the recipient payments are done through account
- It gives loan and advance to government
As an agent
Responsible for managing public debt
As a financial advisor
Advisor government on various monetary matters
3. Bankers bank and supervisor
- Central Bank regulate the supervisor all the commercial bank
- It feels same relationship with commercial bank as the commercial bank maintains with public
As a banker it perform three capacities
1) custodian of cash reserve
2) lands of last resorts
3) clearing houses
As a supervisor it regulates and control commercial bank
4 . Custodian of foreign exchange reserve
Central Bank at as a custodian of country gold and reserve of foreign exchange
According two regulation of foreign exchange all foreign exchange transaction must be rooted through RBI
Control Of Money Supply And Credit
due to economic fluctuations RBI control money supply and credit in the best interest of the economy for this purpose RBI makes use of the following method
(1) Repo rate
(2) Bank rate
(3) Open market operation
(4) Legal reserve required
(A) crr = cash reserve ratio
(B) SLR = statutory liquidity ratio
(5) Margin requirement
Tags:
Economics (macro)