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Concept of liquidity
Different concepts prevail Stock market Immediacy, Depth and Resilience in relation to execution of trades in the market Financial asset With respect to realizable value Physical asset In relation to ease or difficulty of selling Monetary theory and practice How close is a given asset to money We will use this term only in the above sense When we talk of excess or scarce liquidity we will always refer to money and not any other connotation of liquidity
Measures of money
M0 Reserve Money, Monetary Base or High Powered Money Currency in Circulation + Bankers' Deposits with the RBI + 'Other' Deposits with the RBI Net RBI credit to the Government + Net RBI credit to the commercial sector + RBIs claims on banks + RBIs net foreign assets + Governments currency liabilities to the public RBIs net non-monetary liabilities
M1
Currency with the Public + Current Deposits with Banking System+ Demand Liabilities Portion of Savings Deposits with the Banking System + 'Other' Deposits with the RBI
M2 M1 + Savings deposits of post office savings bank
Measures of money
M3 M1 + Time deposits with the banking system Also called Broad Money Currency with the public + Deposits with the banking system + 'Other' Deposits with the RBI Net bank credit to the Government + Bank credit to the commercial sector + Net foreign exchange assets of the banking sector + Governments currency liabilities to the public Net non-monetary liabilities of the banking sector In the above definitions, deposits of non-residents also get included. Non-resident deposit flows related to balance of payments considerations would not constitute domestic demand for money. The RBI therefore has devised a new series of monetary measures using residency concept. It has also introduced some other refinements
Useful ratios: both absolute and incremental Investment Deposit, Cash Deposit, Credit Deposit