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Principles of Money, Banking and Credit

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Charlotte Sonia

on 26 February 2014

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Transcript of Principles of Money, Banking and Credit

Money
Banking
Credit
Economic Characteristics
Medium of Exchange
Unit of Account
Store of
Value
Money
Types of
Money
Money
Supply
Monetary Policy
History of Money
Money is anything that is widely exchanged for goods people sell or work they do. (Microsoft Encarta, 2009)
It is anything that is generally accepted as payment for goods and services and repayment of debts. (Wikipedia.com)
Commodity
Money
Representative
Money
Credit
Money
Fiat money
Market Liquidity
Credit is an arrangement to receive cash,goods,or services now and pay later for them in the future.
Simply means the use of money from future income.
Credit
Trade
Credit
Consumer
Credit
Bank

Money
Policy
Banking
-Banking is the process through which an institution, most often owned by the government, provides financial services. (www.ask.com)
The Inconvenience of Barter
-Anything that facilitates trade by being generally accepted by all parties in payment for goods and services.
Medium
of Exchange
-A common unit for measuring the value of goods or services.
Unit
of Value
-Anything that retains its purchasing power over time.
Store
of Value
-Anything that serves both as a money and as a commodity.
-Historically, corn serves as one example, since parties generally believed that there was a ready market for this commodity.
Commodity Money
Market
Liquidity
-Liquidity is the measure of the ease with which an asset can be converted into money without significant loss of its value.
History
of Banking
The Banking Industry
Traditional Banking Activities
Accounting for bank accounts
Types
of Banks
Bank
Crisis
Profitability
-is money that has no intrinsic value but that has value as money because the government decreed that it has value for that purpose.
Fiat Money
Refers to money that constitutes the future claims of valuable item against an entity.
Credit Money
Something that is not in physical form of currency, but represents the intent to pay money.
Representative
Money
Cost
of Credit
Annual
Percentage Rate
Consumer Credit
-Money, goods or services provided to an individual in lieu of payment.
Trade
credit
-Refer to approval for delayed payments for purchased goods
Credit: Good or Bad?
Principles of Money, Banking, & Credit
Central
Bank
Retail
Banks
Investment Banks
The money supply is the amount of money within a specific economy available for purchasing goods or services.
Money Supply
Monetary policy is the process by which a government, central bank, or monetary authority manages the money supply to achieve specific goals.
Monetary Policy

• changing the rate at which the government loans or borrows money
• currency purchases or sales
• increasing or lowering government borrowing
• increasing or lowering government spending


Monetarism
Monetarism is an economic theory which argues that management of the money supply should be the primary means of regulating economic activity.
Governments and central banks have taken both regulatory and free market approaches to monetary policy. Some of the tools used to control the money supply include:
-The use of barter like methods may date back to at least 100,000 years ago.

-The Shekel referred to an ancient unit of weight and currency. A barley/shekel was originally both a unit of currency and a unit of weight.




Barter is the system where the people exchange product directly.

-Barter depends on double coincidence of wants, a condition wherein the two traders are willing to exchange their goods directly

- a financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money
Banco di San Giorgio
(Bank of St. George)
The first modern bank that was founded in Italy in Genoa in 1406
Etymology
The name bank derives from the Italian word banco
"
desk/bench"
, used during the Renaissance by Florentines bankers, who used to make their transactions above a desk covered by green tablecloth.

-Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customer on the bank, and collecting cheques deposited to customer's current accounts
-Banks borrow money by accepting funds deposited on current account, accepting term deposited and by issuing debt securities such as banknotes and bonds.
-Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments
-Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses
Two kinds of accounts in banking:

1.
Credit Acounts-
are Revenue, Equity and Liabilities.

2.

Debit Accounts
- are Assets and Expenses.

Bank statements
are accounting records produced by banks under the various accounting standards of the world.
Economic
Functions
In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which
the words bancu and bank are derived
Issue
of Money
Netting and Settlement of Payments
Credit Intermediation
Credit Quality Improvement
Maturity Transformation
Business
Bank
-Based on a contractual analysis of the relationship between the bank and the customer.
The law implies
rights and obligations
into this relationship:
Law of Banking
-The
bank account balance
is the financial position between the bank and the customer, when the account is in credit, the bank owes the balance to the customer, when the account is overdrawn, the customer owes the balance to the bank

-The bank engages to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.

-The bank may not pay from the customer's account without a mandate from the customer,e.g. a cheque drawn by the customer.

-The bank engages to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.

-The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.

-The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.

-The bank must not disclose the details of the transactions going through the customer's account unless the customer consents,there is a public duty to disclose, the bank's interests require it, orunder compulsion of law.

-The bank must not close a customer's account without reasonable notice to the customer, because cheques are outstanding in the ordinary course of business for several days.

-Under a barter system, not only is double coincidence of want, but that rate at which two goods are exchanged must be determined

-This points to a need for a commodity that is generally accepted in exchange: money.
The Invention of Money
Banking: Boon or Bane?
Risks include:
Liquidity Risk-
risk that many depositors will request withdrawals beyond available funds.

Credit Risk-
risk that those who owe money to the bank will not repay.

Interest Risk-
risk that the bank will become unprofitable if rising interest rates force it to pay relatively more on its deposits thanit receives on itsloans
A bank generates a profit from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities
Commercial Bank
Community Bank
Community Development Banks
Postal Savings Banks
Private Banks
Offshore Banks
Savings Banks
Building Societies and Land Banks
Ethical Banks
Islamic Banks
Types of Retail Banks:
Types of Investment Banks:
-Investment Banks
"underwite" stock and bond issues, trade for their own accounts, make markets, and advertise corporations on capital markets activities such as mergers and acquisitions.

-Merchant Banks
were traditionally banks which engaged in trade finance
Bank Statements
-According to Herodotus, and most modern scholars, the Lydians were the first people to introduce the use of gold and silver coin.

-The first banknotes were used in China in the 7th century, and the first in Europe issued by Stockholms Banco in 1661.

Sources:
Bible Verse
-the additional amount, over and above the amount borrowed, that the borrower has to pay. It includes interest, arrangement fees and any other charges.
The goal of the APR calculation is to promote 'truth lending', to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products.
Other Type
Islamic banking
is banking or banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economics.
• manipulation of exchange rates
• raising or lowering bank reserve requirements
• regulation or prohibition of private currencies
• taxation or tax breaks on imports or exports of capital into a country
-Mark 8:36
For what shall it profit a man, if he shall gain the whole world, and lose his own soul?
Microsoft Encarta 2009
www.investopedia.com
www.wikipedia.com
www.merriamwebster.com
Google Images

That ends my presentation... Thank you!
By: Salinas, Ezekiel B. II-BS Envi. Sci.
Full transcript