1. Understanding Money and Banking Asst. Prof. Dr. Serdar AYAN

2. “A banker is a fellow who lends you his umbrella when the sun is shining, and wants it back the minute it begins to rain.” ~ Mark Twain

3. Money is anything that is generally accepted as a medium of exchange.
An Overview of Money
What Is Money?
Money is anything that is generally accepted as a medium of exchange.
A Means of Payment, or Medium of Exchange
barter The direct exchange of goods and services for other goods and services.
medium of exchange, or means of payment What sellers generally accept and buyers generally use to pay for goods and services.
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4. The Functions of Money Medium of Exchange Store of Value
Unit of Account

5. An Overview of Money What Is Money? A Store of Value
store of value An asset that can be used to transport purchasing power from one time period to another.
liquidity property of money The property of money that makes it a good medium of exchange as well as a store of value: It is portable and readily accepted and thus easily exchanged for goods.
A Unit of Account
unit of account A standard unit that provides a consistent way of quoting prices.
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6. What Is Money?
Portability
Divisibility
Durability
Stability

7. The Spendable Money Supply: M-1
M-1: Measure of the money supply that includes only the most liquid (spendable) forms of money
Currency: Government-issued paper money and metal coins
Check: Demand deposit order instructing a bank to pay a given sum to a specified payee
Demand Deposit: Bank account funds that may be withdrawn at any time

8. M-1 plus the Convertible Money Supply: M-2
M-2: Measure of the money supply that includes all the components of M-1 plus the forms of money that can be easily converted into spendable form
Time Deposit: Bank funds that cannot be withdrawn without notice or transferred by check
Savings Deposits
Credit Cards

9. The Money Supply M1: Spendable M2: Spendable plus Convertible Currency
Demand deposits
M2: Spendable plus Convertible
Time deposits

10. Money Supply (trillions)
Money Supply Growth
5.4
5.0
4.4
4.0
3.4
3.0
2.4
2.0
1.4
1.0
0.4
Money Supply (trillions)
M-2
M-1

11. Banks As Creators of Money
$ $10.00 $90.00 $190.00
Deposit
Money held in Reserve by Bank
Money to Lend
Total Supply

12. The Central Bank System
Functions
Banking for the government
Banking for banks
Controlling the money supply

13. Controlling the Money Supply The Tools of the Central Bank
Reserve requirements
Discount rate controls
Open market operations
Selective credit controls

14. The Central Bank System
Discount rate : The interest rate that banks pay for Reserve Bank to borrow from it.
Open Market Operations : The purchase and sale by the Reserve Bank of government securities in the open market ; a tool used to expand or contract the amount of reserves in the system and thus the money supply.

15. Banks as Creators of Money
By taking in deposits and making loans, banks expand the money supply.

16. Bolstering International Trade
World Bank
Provides a limited scope of financial services
International Monetary Fund (IMF)
Stable exchange rates
Temporary short-term loans
Cooperation on global monetary issues
International payments system

17. The World Bank and the IMF
World Bank (technically the International Bank for Reconstruction and Development) provides only a very limited scope of services.
The International Monetary Fund (IMF): a group of some 150 nations that have combined resources to:
promote the stability of exchange rates
provide temporary, short-term loans to member countries
encourage members to cooperate on international monetary issues
encourage development of a system for international payments