Economics Concept

Money and Banking....


Money

- anything can be a money as long it can be recogniza and accepted as a medium of exchange
- money has its own shape, value and validity
- before money people tend to used barter trade

Shortcoming of the Barter Trade system

1) Problem in double coincidence of wants
2) Problem in exchange rates
3) problem in divisibility
4) Problem in persihability
5) Problem in portability
Characteristic of money

1) Recognizable - have it own shape in notes or coin
2) Portable - easy to carry, lite and small
3) Stable in value - exchange rates is stable, number shown is the value
4) Divisible in standardized - easy to divided into smaller part
5) Durable - long life
6) Scarcity - shuold be scare and limited in supple but not too scare

Function Of Money

1) Medium of Exchange
2) A store of value- money didnt loat its value even suffer in physical deterioration
3) Ammount of Account - measurement of personal wealth or something like it
4) Standard for deffered payment

Types of Money

1) Coin - limited legal tender
2) notes - Paper money, unlimited legal tender. Shuould be limited but it can be used unlimited
3) Current Deposits

• bank deposits
• cheque deposits
• demand deposits
• not legal tender

4) near Money

• consist of saving deposits
• fixed deposits in commercial bank and BNM or other statementbill
• Converted into money then can be used

Money Supply

M1 = ( Coins + Notes ) + demand deposits

M2= M1 + saving and fixed deposit at commercial bank and BNM + BNM certificates + other negoitable bills

M3= M2 + saving and fixed deposit in other financial institiutions + merchant bank + discount house

broad near money is M3-M1

Liquidity preference thoery

Demand for money by Keynes

People ask money for:

1) Transaction

2) Precaution purposes

3) Speculation