Money and Banking
MONEY AND BANKING
CONTENTS
What is MONEY? 3
Characteristics of money 3
Measurements of money 4
Money and the economy 6
Relationship between Prices and Inflation 6
Why Money Supply Matters 7
Banking 8
General History 8
History in United States 8
Banking basics 9
Other Financial Institutions 9
International Banks 10
Structure of banking industry in U.S. 10
Interest Rates 11
Banking Business 11
Liquidity management by banks 11
Multiple Deposit Creation 14
Banking services 16
Summary 18
References 19
Banking Quiz 20
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
CONTENTS
What is MONEY? 3
Characteristics of money 3
Measurements of money 4
Money and the economy 6
Relationship between Prices and Inflation 6
Why Money Supply Matters 7
Banking 8
General History 8
History in United States 8
Banking basics 9
Other Financial Institutions 9
International Banks 10
Structure of banking industry in U.S. 10
Interest Rates 11
Banking Business 11
Liquidity management by banks 11
Multiple Deposit Creation 14
Banking services 16
Summary 18
References 19
Banking Quiz 20
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