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Money & Banking (Quality of characteristics of money (Recognisability …
Money & Banking
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Type of banks
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Islamic bank refers to a system of banking or activity that is consistent with Islamic laws and principles and guided by Islamic economics. In particular Islamic law prohibit usury, the collection and payment of interest.
Investment banks : help companies and government and their agencies to raise money by issuing and selling securities. They assist public & private corporations in raising funds in the capital markets as well as in providing strategic advisory service for mergers, acquisitions and other types of financial transactions (i.e Am Bank Investments, CIMB Investments and etc).
Commercial banks : accept deposits from customers and in turn makes loan, even in excess of the deposits: a process known as fractional reserve banking. (i.e Affin Bank, CIMB, Maybank & etc)
Small and Medium scale (SME) bank : specialized bank that promote the business, financing of projects and tell revenue generations scheme to entrepreneurs.
Central Bank : A central bank, reserve bank or monetary authority, is an entity responsible for the monetary policy it its country. Monetary policy is the setting of the money supply by policy makers in the central bank.The money supply refers to the quantity of the money available in the economy.The primary way in which the central bank changes the money supply is through open market operations. The central bank purchases and sells government bonds.
- to increase the money supply, the central buys government bonds from the public.
- to decrease the money supply, the central bank sells government bonds to the public.
Functions Central Bank
Acts as a banker`s bank, making loan to banks, controlling bank interest rate and as a lender of last resort to the banking sector during times of financial crisis.
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Regulates banks to ensure they follow federal laws intended to promote safe and sound banks practices.
The function of money
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A store of value : is an item that people can use to transfer purchasing power from the present to the future. For the purpose of savings (as long as we are confident that it will keep/store it present value and therefore retain it purchasing power in the future when we come to use it).
A Unit of account or standard of value : It is the yardstick people use money to compare the values of commodities. Money price make it easier to determine how much product are worth.
Means of deferred payment ; being able to borrow money and pay it back over a relative long period of time.
A medium of exchange; money serve as readily acceptable means of payment for the purchase goods & services. Money is exchange for products. Note ; In a barter economy, goods & services are traded directly for other goods & services. In a barter economy there must be a double coincidence of wants for a trade to take place.
The kinds of money
Fiat money : is used as money because of government decree
It does not have intrinsic value (i.e coins, currency, check deposit).
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Demand deposits are balances in bank accounts that the depositors can access on demand by writing a check.
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Money is anything that serve as a means of payment or method to settling debts.
Fiat money : anything which serve as a means of payment by the government declaration but has no intrinsic value.
It is a legal tender for all debts, public & private.
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