Money and Banking

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What is MONEY?3
Characteristics of money3
Measurements of money4
Money and the economy6
Relationship between Prices and Inflation6
Why Money Supply Matters7
General History8
History in United States8
Banking basics9
Other Financial Institutions9
International Banks10
Structure of banking industry in U.S.10
Interest Rates11
Banking Business11
Liquidity management by banks11
Multiple Deposit Creation14
Banking services16
Banking Quiz20

Learning Objectives

On successful completion of this lesson you will be able to: Understand the role of money and its impact on the economy and measurement of money in an economy. History of banking, liquidity management of banks and banking services and technique of credit creation. MONEY AND BANKING

Money and banking have become an integral part of our lives and one cannot do without it. However, the subtleties of banking and money are not clear to many. This unit aims to introduce you to some of the issues faced in managing a bank. The breadth of such issues is vast and by necessity, this unit concentrates on the financial aspects of bank management.

You should be well aware of the rapid developments in banking from media reports in recent years, including criticisms of banking policies and practices. You may even have experienced these changes through dealings with your own bank. This criticism of banks is not limited to one country and generally followed the worldwide trend in the 1980s towards deregulation. This has led to the establishment of Banking Ombudsmen in several countries and the development of Codes of behaviour for both banks and their employees.

The period of deregulation is accompanied by one important development - the rapid development of global computer communications that enabled financial institutions to develop new products and to internationalise their business. This brought greater risks, and latterly, the development of techniques to manage these exposures. What is MONEY?

I doubt if anybody would ask the question “What is money”? I you did, here's what is isn't.

MONEY is not the same thing as INCOME or WEALTH
While in ordinary conversation we commonly use the word money to mean income ("he makes a lot of money") or wealth ("she has a lot of money"), technically money means something quite different: Money = anything that is generally accepted as payment

Q: What is money? That is, what counts as money?
A: Obviously, cash -- dollar bills, coins -- is a form of money. Q: Is there anything else that counts as money?
A: Checking accounts.
Q: Are credit cards money?
A: No. They're not legal tender. What a credit-card purchases really represents is just an extremely convenient, pre-approved loan. It's only part of the transaction, since the merchant then goes to the bank that issued the credit card to get money, and the bank sends you a bill which must be paid with money. Characteristics of money

The forms that money has taken on depend heavily on how well it performs the three roles ,viz., medium of exchange, store of value, and unit of account. The following are some of the characteristics a commodity or specie needs to possess to perform the three roles of money efficiently: (1)Non-perishable in the sense it does not get spoilt by keeping. (2)Divisible into fractions if necessary

(3)Widely accepted (in payment of goods and services and for settling other business obligations) (4)Easily standardized, meaning that it can be expressed in standard unit (5)Portable and can be moved from place to place.

(6)Limited in supply
(7)Supply is relatively stable and does not change frequently. (8)High in value i.e. its physical size is small relative to its value. (9)Not easily counterfeited
However, new problems have surfaced with the development of digital cash. Since digital cash is made up of bits of digital...
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