Risk Management in Bank Institutions

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  • Topic: Money, Economics, Currency
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  • Published : May 9, 2013
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Daystar University (Nairobi Campus)

Assignment in partial fulfillment of the course ECO 212X

Presented to: M.R Jimnah Waweru

Presented by: Betsy Mbinya Mulwa.

Admission Number: 10-1026

Topic on research: Money and Banking in both Kenya and the developing countries.

Date due: 16/04/2012

Table of contents

Section A

Introduction ……………………………………………..

The history and creation of money………………………………

The nature and functions of money…………………………….

The demand for and supply of money…………………………

Banking system in Kenya and developing countries…………………………………….

Section B

The open economy…………………………………………….

Theory of comparative advantage……………………………..

Free trade vs. protectionism………………………………….

The balance of payments…………………………………

National debt………………………………………………..

Introduction

There have been more changes brought about in the world of money and banking. In determination of income and employment money plays a central role. Federal Reserve controls money growth and interest rates.

History of money

First there used to be presence of barter trade moved to commodity money where a commodity would be of intrinsic value like Gold and finally came fiat money used because of government decree.

Money: these are assets in economy that buy goods and services for people.

Creation of money

Supply of money is affected by amount deposited in banks and the amount that the bank’s loan. There also the aspect of money multiplier which is the reciprocal reserve ratio

Money multiplier= 1/required reserve ratio.

The multiplier process

The public

Excess reserves leakage into

Required reserves

New bank deposit leaks into required reserves. The excess reserves used to make loans which in turn become deposits elsewhere. Creation of money continues until all available reserve are required.

Functions of money

Money as a unit of account:

Unit of account is simply measuring rod of value. It ceased to be associated with a particular commodity like gold. In most countries unit of account has become an abstract intangible measure. It is the money’s principle to serve the unit of account.

The unit of account in Kenya is in shillings.

As a medium of exchange:

A common unit of account facilitates trade but the economy keeps on increasing. It is difficult for barter transactions to be effective, instead of using other goods money is used in terms of paper or coins

The unit of money in Kenya

Kenyan shilling (KES)

Iso 4217 code KES

User: Kenya

Subunit: 1/100 cnt

Symbol: Ksh

Coins; frequently used: 1, 5, 10, 20 shillings

Rarely used: 50 cent, 40 shillings

Bank notes: frequently used: 50,100,200,500, and 1000 shillings.

Rarely used: 10, 20 shillings

Central bank: central bank of Kenya

Money as a store of value: people can store assets for future consumptions to leave inheritance to a group. These assets must be converted into some money, other people hold their wealth in form of money and this is where it performs store of value function when wealth is held in monetary form.

As a standard of deferred payments:

Lately contracts involving future payments are denominated in money. For example getting a house by mortgage one is required to pay either in cash. In Kenya people sell their lands to get paid in Ksh.

The demand for and supply for money

a. The demand for money

This is the demand for real money balances because people hold money for what it will buy. Nominal balances are more when the price level is high; a person has to hold to purchase a given quantity of goods. Doubling of price level will lead to individual holding twice nominal balance in order to buy...
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