Impact of Monetary Policy on Companies Profitability and Its Valuation
Meaning of monetary policy
Monetary policy is the management of money supply and interest rates by central banks to influence prices and employment. Monetarypolicy works through expansion or contraction of investment and consumption expenditure.Monetary policy is the process by which the government, central bank (RBI in India), or monetary authority of a country controls :
(i) The supply of money
(ii) Availability of money
(iii) Cost of money or rate of interest
In order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy.
Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending and taxation.Credit policy is not only a policy concerned with changes in the supply of credit but it can be and is much more than this.Credit is not merely a matter of aggregate supply, but becomes more important factor since there is also issue of its allocation among competing users. There are various sources of credit and other aspects of credit that need to be looked into are its cost and other terms and conditions, duration, renewal, risk of default etc. Thus the potential domain of credit policy is very wide. Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alter the money supply and thus influence the interest rate in order to achieve policy
Monetary policy is the management of money supply and interest rates by central banks to influence prices and employment. Monetarypolicy works through expansion or contraction of investment and consumption expenditure.Monetary policy is the process by which the government, central bank (RBI in India), or monetary authority of a country controls :
(i) The supply of money
(ii) Availability of money
(iii) Cost of money or rate of interest
In order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy.
Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending and taxation.Credit policy is not only a policy concerned with changes in the supply of credit but it can be and is much more than this.Credit is not merely a matter of aggregate supply, but becomes more important factor since there is also issue of its allocation among competing users. There are various sources of credit and other aspects of credit that need to be looked into are its cost and other terms and conditions, duration, renewal, risk of default etc. Thus the potential domain of credit policy is very wide. Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alter the money supply and thus influence the interest rate in order to achieve policy