Money and credit

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WELCOME IN THE CLASS OF ECONOMICS

CLASS :- X

MR.D.B.GAEKWAD (TGT/S.STDS.)JAWAHAR NAVODAYA VIDYALAYA PARBHANI 431402 MS

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3. MONEY AND CREDIT

CLASS :- XTH.



DEFINITION OF MONEY Money is any good that is widely used and

accepted in transactions involving the transfer of goods and services from one person to another.

ROBERTSON :- “ANY COMMODITY THAT FULL FILLS THE RESPONSIBILTY OF PAYMENT AND OCCUPATION IS CALLED MONEY”

G.D.H.KAUL :-“ANY GOODS WHICH IS READILY ACCEPTED TOWRDS PAYMENTS AND CREDIT IS CALLED MONEY.”

KENT :- “ANY THING WHICH IS READILY ACCEPTED A NEASURE OF VALUE DURING TRANSACTION IS CALLED MONEY.”


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DEFINITION OF MONEY ACCORDING TO THE RESERVE BANK OF INDIA

RESERVE MONEY (M0):- CURRENCY IN CIRCULATION+ DEPOSITS OF COMMERCIAL BANKS IN RBI- LOANS GRANTED BY RBI TO THE GOVT. + ASSESTS OF THE RBI ABROAD - IT IS THE MOST LIQUID STATE OF MONEY WHERE IN THE ASSESTS COULD BE READILY CONVERTED INTO MONEY.

(M1):- M0 + THE AMOUNT OF MONEY DEPOSITED BY THE CUSTOMERS IN DIFFERNT BANKS IN DIFFERNT ACCCOUNTS VIZ., SAVING, CURRENT RECURRING, TIME DEPOSITS ETC.

(M2):- M1 + AMOUNT OF MONEY DEPOSITED BY THE CUSTOMER IN THE POST OFFICE IN POSTAL ACCOUNTS SUBJECT TO THE MAXIMUM LIMITS OF Rs.100,000.

(M3):- M1 +ALL TYPES OF THE TERM DEPOSITS +GOVT. BONDS, SHARES DEBENTURES, SECURITIES ETC.

(M4):- M3 +ALL SORTS OF SAVING ACCOUNTS IN THE POST OFFICE EXCEPT NATIONAL SAVING CERTIFICATES.



COUNTRIES AND THEIR CURRENCIES

S.NO. COUNTRIES CURRENCY

1 CHINA YUAN

2 RUSSIA ROUBLE

3 BELGIUM BELGIAN FRANC

4 JAPAN YEN

5 SUDAN POUND













HISTORIC ERA CURRENCIES

AKBAR ERA GOLDEN COIN

MUHHMED TUGLAQ ERA COINS.

SAMUDRAGUPTA PERIOD COINS

MODERN ERA INDIAN CURRENCY











CLASSIFICATION OF MONEY



FULL BODIED MONEY

Full-bodied money is money whose value as a commodity for non-monetary purposes (i.e, the value of metal coined it) is as great as its value as money. The main full-bodied monies in modern economies have been the coins of standard metals like Gold and Silver.



REPRSENTATIVE FULL BODIED MONEY

Representative Full-bodied money is usually made of Paper.

It is equivalent to a circulating warehouse receipt for full-bodied coins or their equivalent in bullion.

The paper money itself has no value as a commodity, but it represents in circulation an amount of money with a commodity value equal to the value of money.For example NSC.



CREDIT MONEY

It is that money whose value of money (face-value) is greater than the commod-ity value (intrinsic value) of money. Token coins and promissory notes are part of credit money.

Token coins. Representative Token Money: Promissory Notes issued by Central Banks. Bank Deposits.



FUNCTIONS OF MONEY PRIMARY FUNCTION

MEANS OF TRANSACTON. MEASURE OF VALUE.

SECONDARY FUNCTION OF MONEY STORE OF VALUE. HELPFUL IN DEFFERED PAYMENT. TRANSFER OF VALUE.



FUNCTIONS OF MONEY

CONTIGENT FUNCTIONS OF MONEY:-

BASIS OF CREDIT

LIQUIDITY.

GUARANTER OF SOLVENCY.

DISTRIBUTION OF NATIONAL INCOME.



IS IT POSSIBLE TO PERFORM THE FUNCTION OF BUYING AND SELLING WITH OUT MAKING USE OF A MONEY MEDIUM



YES, IT IS POSSIBLE THROUGH THE BARTER SYSTEM



BARTER SYSTEMI’LL GIVE YOU CLOTHES FOR YOUR WHEAT.

I DON’T NEED CLOTHES. I NEED SHOES

I WANT CLOTHES.BUT I DON’T HAVE WHEAT.



BANKS’S CREDIT/LOANS RELATED ACTIVITIES

DEPOSITORS BORROWERS

People makedeposits

People takeloans

People makewithdrawals andget interest

People repayloans withinterest

1. ACCEPTS DEPOSITS FROM THE PEOPLE2. RENDERS LOANS TO THE NEEDY3. RAISE CREDITS4. TRANSFER ACCOUNTS



HOW DOES BANK CREATE CREDIT?





CREDIT CREATION BY BANKS

DEPOSITS IN THE COMMERCIAL BANKS.

AIDS FROM THE RESRVE BANK OF INDIA.

INVESTMENTS OF THE BANKS IN THE STOCK MARKET.

INTERST EARNED BYTHE BAKNS UPON THE SANCTIONED LOANS.



NEED FOR THE CREDITTIME BASED

• SHORT TERM :-LESS THEN 15 MONTHS

• MID TERM:-15 MONTHS TO 5 YEARS

• LONG TERM :- MORE THAN 5 YEARS

PURPOSE ORIENTED PRODUCTIVE LOANS

:-FOR THE PURCHASE OF NEW TECHONLOGY, FERTILIZERS, AGRICULTURE EQUIPMENTS ETC.

UNPRODUCTIVE LOANS :-FOR PERFORMING SOCI- RELIGIOUS CERMONIES NAD RIGHTS, REDEMPTION OF OLD LOANS



CONDITIONS OF CREDIT/LOANS

LOAN FORMALITIES ARE THE CONDITINS UPON WHCIH A BANK SANCTIONS A CREDIT TO ITS CUSTOMER:-

RATE OF INTERST MORTGAGE MODE OF PAYMENTS



TYPES OF LOANS

AGRICULTURAL LOANS PERSONAL LOANS HOME LOANS EDUCATIONAL LOANS MEDICAL LOANS



SOURCES OF CREDITS/LOANS



SOURCES OF LOANSFORMAL SOURCES

FORMAL SOURCES:- RESERVE BANK OF INDIA KEEP A VIGIL OVER THE WORKING OF THE ACTIVITIES OF ALL THE COMMERCIAL BANKS.

IT IS MANDATORY FOR THE COMMERCIAL BANKS TO GIVE AN ACCOUNT OF, THAT BESIDES PROFIT MAKING CORPORATE HOUSES HOW MUCH LOANS THEY HAVE DISBURSED TO THE POOR AND NEEDY FARMERS.IN AYEAR .WHAT WAS THE RATE OF INTERSET AND TERM OF REDEMPTION .



RESERVE BANK OF INDIA MONETARY POLICY :- is the process by

which monetary authority of a country, generally a central bank controls the supply of money in the economy by exercising its control over interest rates in order to maintain price stability and achieve high economic growth. In India, the central monetary authority is the Reserve Bank of India (RBI). is so designed as to maintain the price stability in the economy. RBI takes into account the following monetary policies:-

CASH RESERVE RATIO REPO RATE REVERSE REPO RATE STATUTORY LIQUIDITY RATIO.



CASH RESERVE RATIO(CRR)• The Reserve Bank of India (Amendment) Bill, 2006 has

been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate ( [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities].

• RBI uses CRR either to drain excess liquidity or to release funds needed for the growth of the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation.



REPO RATE• Repo (Repurchase) rate is the rate at which

the RBI lends shot-term money to the banks against securities. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.



REVERSE REPO RATE• Reverse Repo rate is the rate at which

banks park their short-term excess liquidity with the RBI.

• The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns.

• An increase in the reverse repo rate means that An increase in the reverse repo rate means that the RBI is ready to borrow money from the banks the RBI is ready to borrow money from the banks at a higher rate of interest. As a result, banks at a higher rate of interest. As a result, banks would prefer to keep more and more surplus would prefer to keep more and more surplus funds with RBI.funds with RBI.



RESERVE BANK OF INDIA

FISCAL POLICY :-word Fiscal is taken from French word Fisc it means treasure of Govt. So we can define fiscal policy as the revenue and expenditure policy of Govt. of India .Through this policy , Govt. collects money from his different resources and utilize it in different expenditure . Thus fiscal policy is related to development policy .

Techniques of Fiscal Policy Taxation Govt. Expenditure Policy Deficit Financing Policy Public Debt Policy



SOURCES OF CREDIT/LOANSINFORMAL SOURCES

INFORMAL SOURCES :-THERE IS NO INSTITUTION TO CHECK THE WORKING AND CREDIT DISBURSING CONDITIONS OF THIS SOURCE.

FLEXIBLE RATE OF INTEREST WITH OUT GIVING PRIOR INTIMATION . IT MAY VARY PERSON TO PERSON

EXORBITANT RATE OF INTEREST.ILLEGAL MODE OF REMDEMPTION OF

LOANS , INTERST FROM THE CUSTOMER



SELF HELP GROUP

A self-help group (SHG) is a village-based financial intermediary usually composed of 10–20 local women.

This organisation accepts minimum amount as a deposits from the member

EASY LOANS AT A SUSIDIED RATE. UNTIL MARCH 2003 THERE WERE

7,17360 SELF HELP GROUPS.NABARD estimates that there are 2.2 million

SHGs in India



What is the importance of self help group in india?

1.improve efficiency of the credit system2.channel of financial conclusion3.resource mobilization4.promote savings and banking habit5.improve the living condition of the poor6.empowerment of women7.promote social and economic justice8.community actions9.develop individual skills of the community members10.livelihood finance and employment generation11.reduce influence of unorganised sector12.benificial to the financial sector



Money is any good that is widely used and accepted in transactions involving the transfer of goods and services from one person to another.

ROBERTSON :- “ANY COMMODITY THAT FULL FILLS THE RESPONSIBILTY OF PAYMENT AND OCCUPATION IS CALLED MONEY”

G.D.H.KAUL :-“ANY GOODS WHICH IS READILY ACCEPTED TOWRDS PAYMENTS AND CREDIT IS CALLED MONEY.”

KENT :- “ANY THING WHICH IS READILY ACCEPTED A NEASURE OF VALUE DURING TRANSACTION IS CALLED MONEY.”

QUICK REVIEW



RECAPITULATION What is a money? What are the functions of money What are the formal source of credit? What are the informal source of credit? What is CRR?What is a Repo rate?



THANKS YOU


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