MONEY AND CREDIT

MONEY: The use of money spans a very large part of our daily life look around you and you Would easily be able to identify several transactions involving money in a single day. Money is also used as a exchanging medium.

Credit : Credit encompasses any form of deferred payment. Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower.

DEFINATION OF BANK•  Bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of

several related types of entities:

• A central bank circulates money on behalf of a government and acts as its monetary authority by

implementing monetary policy, which regulates the money supply.

• A commercial bank accepts deposits and pools those funds to provide credit, either directly by lending, or

indirectly by investing through the capital markets. Within the global financial markets, these institutions

connect market participants with capital deficits (borrowers) to market participants with capital surpluses

(investors and lenders) by transferring funds from those parties who have surplus funds to invest (financial

assets) to those parties who borrow funds to invest in real assets.

• A savings bank (known as a "building society" in the United Kingdom) is similar to a savings and loan

association (S&L). They can either be stockholder owned or mutually owned, in which case they are

permitted to only borrow from members of the financial cooperative. The asset structure of savings banks

and savings and loan associations is similar, with residential mortgage loans providing the principal assets

of the institution's portfolio.

DEPOSITS WITH BANKS

The other form in which people hold money is as deposits

with banks. At a point of time , people need only some

currency for their day-to-day work needs. For instance,

workers who receive their salaries at the end of each month

have extra cash at the beginning of the month. Then to

save money people deposit money into the bank. Banks

accept the deposit and also pay an amount as an intrest on

the deposits. In this way people money is safe with the

banks and it earns an amount as intrest.

• Money is any object or record that is generally accepted

as payment for goods and services and repayment

of debts in a given country or socio-economic context.

• The main functions of money are distinguished as:

• a medium of exchange;

• a unit of account;

• a store of value;

• and, occasionally in the past, a standard of deferred

payment. Any kind of object or secure verifiable record

that fulfills these functions can serve as money.

1)credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources (or other materials of equal value) at a later date. The resources provided may be financial or they may consist of goods or services. Credit encompasses any form of deferred payment. Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower.

2)Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services . However, in modern societies credit is usually denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account.Movements of financial capital are normally dependent on either credit or equity transfers. . Credit is also traded in financial markets.

Where Does Your Money Go? Track expenses for one month

What did you buy Which were needs vs. wants Patterns of spending

Categorize spending (clothing, food, etc.) Identify future spending (car, etc.)

The defination of money

• Anything that serves all three of the following is called as money-

• means of payment or medium of exchange

• Unit of account• Store of value

MODERN FORMS OF MONEY

We have seen that money is something that can act as a medium of exchange in transactions . before the introduction of coins, a variety of objects was used as money.

Modern forms of money include:

1)Currency

2)Deposits from banks

Modern forms of money include currency- paper notes

Coins . Unlike the things that were used as money

earlier ,modern currency is not made up of precious

metal such as gold or silver.

in india, the reserve bank of india issues currency

Notes on behalf of the central government.as per the

Indian law . No other individual or community

Organisation is allowed to issue currency.

moreover., the law laegalises the use of money as a medium

Of payment that cannot be refused in settling transaction

CURRENCY

LOAN ACTIVITIES OF BANKS

• There is an interesting mechanism at work here .banks keep only a small proportion of their deposits as cash with themselves.

• For example, banks in india these days hold about 15% of their deposits as cash .

• This is kept as provision to pay the depositors who might come to withdraw money from the bank on any given day. Since, on any particular day, only some of its many depositors come to withdraw the cash , the banks is able to manage with this cash.

TWO DIFFERENT CREDIT SITUATION

A large number of transaction in our day-to-day activities involves credit in some form or the other. Credit(loan) refers to an agreement in which the

lender supplies the borrower with money , goods or service in return for the promise of future payment . Let us see how credit works through the following

two example:

1)Profit of credit(festival season)

2)Loss due to credit(swapna problem)

TERMS OF CREDIT• Every loan agreement specifies an intrest rate which the

borrower must pay to the lender along with the repayment of the principal. In addition , lenders may demand collateral against loans.

• Collateral is an asset that the borrower owns and uses this as a guarantee to the lender until the loan is repaid .

• If the borrower fails to repay the loan , the lender has the right to sell the asset or collateral to obtain payment. Property such as land titles, deposits with banks, livestock are some common example of collateral used for borrowing.

Money supply

In economics, money is a broad term that refers to any financial instrument that can fulfill the functions of money (detailed above). These financial instruments together are collectively referred to as the money supply of an economy. In other words, the money supply is the amount of financial instruments within a specific economy available for purchasing goods or services. Since the money supply consists of various financial instruments (usually currency, demand deposits and various other types of deposits), the amount of money in an economy is measured by adding together these financial instruments creating a monetary aggregate.

FunctionsIn the past, money was generally considered to have the following functions:

1) "Money is a matter of functions four,

2) a medium,

3) a measure,

4) a standard,

5) a store.

6) " That is, money functions as a medium of exchange, a unit of account,

a standard of deferred payment, and a store of value.However, that of medium of

exchange, 

7) unit of account, and store of value, not considering a standard of deferred

payment as a distinguished function, but rather subsuming it in the others.

Thank you!