Karnataka 2nd PUC Economics Notes Chapter 9 Money and Banking
→ Exchange of goods for goods is called as Barter System.
→ Money is anything which is commonly accepted as a medium of exchange for good’s and services and acts as a measure of value.
→ According to F. A. Walker “Money is what money does”.
→ The two primary functions of Money are -Accepting deposits and lending loans.
→ High powered money refers to that money which is held by the public, demand deposits of banks and other deposits held by the Reserve Bank of India.
→ The demand for money includes the sum of transactionary demand for money, precautionary demand for money and speculative demand for money.
→ The supply of money refers to the total currency notes and coins held by the people in the country at a particular point of time. In other words, it refers to the aggregate stock of money.
Narrow money:
→ The money which is fully liquid and available whenever people need is called narrow money.
Broad money:
→ Broad money refers to the money held by the public in the form of savings and Net Time Deposits apart from the currency and demand deposits.
→ When a bank accepts cash from the customer and opens an account in the name of that customer, it is called Primary Deposit.
→ Bank rate is the rate of interest charged by the Reserve Bank of India while lending loans and advances to commercial banks.
→ Overdraft is a facility provided by a bank to its current account holders to overdraw their accounts upto a certain limit.
→ The CRR is a certain percentage of bank deposits which commercial banks are required to keep with the RBI in the form of reserve funds.
Statutory Liquidity Ratio (SLR)?
→ There is an RBI directive to commercial banks to maintain a certain percentage of their total demand and time deposits with themselves, in the form of liquid assets like cash, precious metals or approved securities like bonds. The ratio of the liquid assets to time and demand liquidities is termed as SLR which is 22.5% at present.
Precautionary motive of money:
→ The demand for money to meet the unforeseen and unexpected expenses is known as precautionary demand for money.