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Money
Money is anything that is generally accepted in exchange for goods or services. Commodities have several disadvantages when used as money, the most important of which is that they deteriorate easily after a few trades. Precious metal coins have been used for money, partly because of their durability.
Currency
Currency consists of coins and/or paper that some institution or government has created to be used in the trading of goods and services and the payment of debts. Currency in the form of metal coins is still used as money throughout the world today. The disadvantage of metal currency is that it is bulky.
Currency
Certain types of metals traditionally used in coins, like gold and silver, are not available in sufficient quantities to meet our demands for a monetary instrument. For these reasons, metal coins have for centuries been supplemented by paper currency, often in the form of bank notes.
Currency
Coins and paper money have been officially declared to be money to be acceptable for the settlement of debts incurred in financial transactions. In effect, the government says, We declare these instruments to be money, and citizens are expected to accept them as a medium of exchange.
Liabilities A. Monetary Liabilities (ML) A1. Notes in circulation A2. Other Deposits: a.Deposits of quasigovernment and other financial institutions b.Balances in the accounts of foreign Central Banks and governments c.Accounts of international agencies such as the IMF, etc. A3. Deposits of Banks (Reserves)
Assets Financial Assets (FA) A. Credit to Government A1. RBI credit to the Center a.Loans and Advances from the RBI to the Center b.RBI holdings of Treasury Bills, dated securities and rupee coins and small coins A2. RBI credit to the State Governments: Loans and advances to the State Governments
Liabilities B. Non-monetary Liabilities (NML) B1. Capital Account: (Net Worth) a.Paid-up Capital b.Statutory Reserve c.Contingency Reserve, etc. B2. Government Deposits B3. IMF a/c No.1 (Since 1948) B4. Miscellaneous NMLs e.g. Bills Payable, RBI Employees Pension Fund, Cooperative Guarantee/Provident Funds (since 1964), Compulsory Deposit Scheme Balance, etc.
Assets B. Credit to the Commercial Sector B1. Shares/bonds of financial institutions B2. Ordinary debentures of the co-operative sector B3. Debentures of co-operative land mortgage banks B4. Loans to financial institutions B5. Internal bills purchased and discounted
Liabilities
Assets C. RBI's Gross Claims on Banks C1. Refinance of RBI to the banks C2. Fixed investments in commercial banks' shares/bonds/debentures, e.g. Holding of shares of the SBI D. Net Foreign Assets D1. Gold coin and bullion D2. Eligible foreign securities D3. Balances held abroad netted for balances in IMF Account No.1 minus India's quota subscription in rupees Other Assets (OA) A. Physical Assets B. Others
Money Multiplier
The money multiplier approach is based on the following equation Ms = m.H Where m is the money multiplier and Ms is the broad money (M3) . M3 is the sum of currency held by the public (C), demand deposits with the commercial banks (DD) and the time deposits with the banks (TD). or, M3 = C + DD + TD
Money Multiplier
Money multiplier m = M3/H = (C+DD+TD)/(C+R) where R = (DD + TD) r or r= Reserve Ratio=R/(DD+TD) and Dividing the numerator and denominator by DD we have: