Money and credit

MONEY AND CREDIT
LESSON NO.3 ECONOMICS (CBSE)
MR. D.B.GAEKWAD (TGT/S.STDS.)
JAWAHAR NAVODAYA VIDYALAYA PARBHANI 431402 MAHARASHTRA

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WELCOME IN THE
CLASS OF ECONOMICS
CLASS :- X
MR.D.B.GAEKWAD (TGT/S.STDS.)
JAWAHAR NAVODAYA VIDYALAYA PARBHANI
431402 MS

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3. MONEY AND CREDIT
CLASS :- XTH.

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DEFINITION OF MONEY
Money is any good that is widely used and
accepted in transactions involving the transfer
of goods and services from one person to
another.
ROBERTSON :- “ANY COMMODITY THAT FULL
FILLS THE RESPONSIBILTY OF PAYMENT AND
OCCUPATION IS CALLED MONEY”
G.D.H.KAUL :-“ANY GOODS WHICH IS READILY
ACCEPTED TOWRDS PAYMENTS AND CREDIT IS
CALLED MONEY.”
KENT :- “ANY THING WHICH IS READILY ACCEPTED
A NEASURE OF VALUE DURING TRANSACTION IS
CALLED MONEY.”

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DEFINITION OF MONEY ACCORDING TO THE RESERVE BANK OF
INDIA
RESERVE MONEY (M0):- CURRENCY IN CIRCULATION+
DEPOSITS OF COMMERCIAL BANKS IN RBI- LOANS GRANTED BY
RBI TO THE GOVT. + ASSESTS OF THE RBI ABROAD - IT IS THE
MOST LIQUID STATE OF MONEY WHERE IN THE ASSESTS COULD
BE READILY CONVERTED INTO MONEY.
(M1):- M0 + THE AMOUNT OF MONEY DEPOSITED BY THE
CUSTOMERS IN DIFFERNT BANKS IN DIFFERNT ACCCOUNTS VIZ.,
SAVING, CURRENT RECURRING, TIME DEPOSITS ETC.
(M2):- M1 + AMOUNT OF MONEY DEPOSITED BY THE CUSTOMER IN
THE POST OFFICE IN POSTAL ACCOUNTS SUBJECT TO THE MAXIMUM
LIMITS OF Rs.100,000.
(M3):- M1 +ALL TYPES OF THE TERM DEPOSITS +GOVT. BONDS,
SHARES DEBENTURES, SECURITIES ETC.
(M4):- M3 +ALL SORTS OF SAVING ACCOUNTS IN THE POST OFFICE
EXCEPT NATIONAL SAVING CERTIFICATES.

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COUNTRIES AND THEIR CURRENCIES
S.NO. COUNTRIES CURRENCY
1 CHINA YUAN
2 RUSSIA ROUBLE
3 BELGIUM BELGIAN
FRANC
4 JAPAN YEN
5 SUDAN POUND

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HISTORIC ERA CURRENCIES
 AKBAR ERA GOLDEN COIN
 MUHHMED TUGLAQ ERA COINS.
 SAMUDRAGUPTA PERIOD COINS
 MODERN ERA INDIAN CURRENCY

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CLASSIFICATION OF MONEY

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FULL BODIED MONEY
Full-bodied money is money whose value
as a commodity for non-monetary
purposes (i.e, the value of metal coined it)
is as great as its value as money. The
main full-bodied monies in modern
economies have been the coins of
standard metals like Gold and Silver.

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REPRSENTATIVE FULL BODIED MONEY
Representative Full-bodied money is
usually made of Paper.
It is equivalent to a circulating
warehouse receipt for full-bodied coins
or their equivalent in bullion.
The paper money itself has no value as
a commodity, but it represents in
circulation an amount of money with a
commodity value equal to the value of
money.For example NSC.

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CREDIT MONEY
It is that money whose value of money
(face-value) is greater than the
commod-ity value (intrinsic value) of
money. Token coins and promissory
notes are part of credit money.
Token coins.
Representative Token Money:
Promissory Notes issued by Central Banks.
Bank Deposits.

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FUNCTIONS OF MONEY
PRIMARY FUNCTION
 MEANS OF TRANSACTON.
 MEASURE OF VALUE.
SECONDARY FUNCTION OF MONEY
 STORE OF VALUE.
 HELPFUL IN DEFFERED PAYMENT.
 TRANSFER OF VALUE.

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FUNCTIONS OF MONEY
CONTIGENT FUNCTIONS OF MONEY:-
 BASIS OF CREDIT
 LIQUIDITY.
 GUARANTER OF SOLVENCY.
 DISTRIBUTION OF NATIONAL INCOME.

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IS IT POSSIBLE TO PERFORM THE
FUNCTION OF BUYING AND
SELLING WITH OUT MAKING USE
OF A MONEY MEDIUM

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 YES, IT IS POSSIBLE THROUGH
THE BARTER SYSTEM

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BARTER SYSTEM
I’LL GIVE YOU CLOTHES
FOR YOUR WHEAT.
I DON’T NEED CLOTHES.
I NEED SHOES
I WANT CLOTHES.
BUT I DON’T HAVE WHEAT.

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BANKS’S CREDIT/LOANS RELATED ACTIVITIES
DEPOSITORS BORROWERS
People make
deposits
People take
loans
People make
withdrawals
and
get interest
People repay
loans with
interest
1.ACCEPTS DEPOSITS FROM THE PEOPLE
2.RENDERS LOANS TO THE NEEDY
3. RAISE CREDITS
4. TRANSFER ACCOUNTS

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HOW DOES BANK CREATE
CREDIT?

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CREDIT CREATION BY BANKS
 DEPOSITS IN THE COMMERCIAL
BANKS.
 AIDS FROM THE RESRVE BANK OF
INDIA.
 INVESTMENTS OF THE BANKS IN
THE STOCK MARKET.
 INTERST EARNED BYTHE BAKNS
UPON THE SANCTIONED LOANS.

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NEED FOR THE CREDIT
TIME BASED
• SHORT TERM
:-LESS THEN 15
MONTHS
• MID TERM:-15
MONTHS TO 5
YEARS
• LONG TERM :-
MORE THAN 5
YEARS
PURPOSE ORIENTED
 PRODUCTIVE LOANS
:-FOR THE PURCHASE OF
NEW TECHONLOGY,
FERTILIZERS,
AGRICULTURE
EQUIPMENTS ETC.
 UNPRODUCTIVE LOANS
:-FOR PERFORMING SOCI-
RELIGIOUS CERMONIES
NAD RIGHTS,
REDEMPTION OF OLD
LOANS

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CONDITIONS OF CREDIT/LOANS
LOAN FORMALITIES ARE THE CONDITINS
UPON WHCIH A BANK SANCTIONS A
CREDIT TO ITS CUSTOMER:-
 RATE OF INTERST
 MORTGAGE
 MODE OF PAYMENTS

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TYPES OF LOANS
 AGRICULTURAL LOANS
 PERSONAL LOANS
 HOME LOANS
 EDUCATIONAL LOANS
 MEDICAL LOANS

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SOURCES OF CREDITS/LOANS

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SOURCES OF LOANS
FORMAL SOURCES
FORMAL SOURCES:- RESERVE BANK OF
INDIA KEEP A VIGIL OVER THE WORKING OF
THE ACTIVITIES OF ALL THE COMMERCIAL
BANKS.
IT IS MANDATORY FOR THE COMMERCIAL
BANKS TO GIVE AN ACCOUNT OF, THAT
BESIDES PROFIT MAKING CORPORATE
HOUSES HOW MUCH LOANS THEY HAVE
DISBURSED TO THE POOR AND NEEDY
FARMERS.IN AYEAR .WHAT WAS THE RATE
OF INTERSET AND TERM OF REDEMPTION .

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RESERVE BANK OF INDIA
 MONETARY POLICY :- is the process by
which monetary authority of a country, generally a
central bank controls the supply of money in the
economy by exercising its control over interest rates
in order to maintain price stability and achieve high
economic growth. In India, the central monetary
authority is the Reserve Bank of India (RBI). is so
designed as to maintain the price stability in the
economy. RBI takes into account the following
monetary policies:-
CASH RESERVE RATIO
REPO RATE
 REVERSE REPO RATE
STATUTORY LIQUIDITY RATIO.

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CASH RESERVE RATIO(CRR )
•The Reserve Bank of India (Amendment) Bill, 2006 has
been enacted and has come into force with its gazette
notification. Consequent upon amendment to sub-Section
42(1), the Reserve Bank, having regard to the needs of
securing the monetary stability in the country, RBI can
prescribe Cash Reserve Ratio (CRR) for scheduled banks
without any floor rate or ceiling rate ( [Before the
enactment of this amendment, in terms of Section 42(1) of
the RBI Act, the Reserve Bank could prescribe CRR for
scheduled banks between 3 per cent and 20 per cent of
total of their demand and time liabilities].
•RBI uses CRR either to drain excess liquidity or to release
funds needed for the growth of the economy from time to
time. Increase in CRR means that banks have less funds
available and money is sucked out of circulation.

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REPO RATE
•Repo (Repurchase) rate is the rate at which
the RBI lends shot-term money to the banks
against securities. When the repo rate
increases borrowing from RBI becomes more
expensive. Therefore, we can say that in
case, RBI wants to make it more expensive
for the banks to borrow money, it increases
the repo rate; similarly, if it wants to make it
cheaper for banks to borrow money, it
reduces the repo rate.

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REVERSE REPO RATE
•Reverse Repo rate is the rate at which
banks park their short-term excess
liquidity with the RBI.
• The banks use this tool when they feel
that they are stuck with excess funds and
are not able to invest anywhere for
reasonable returns.
•An increase in the reverse repo rate means that An increase in the reverse repo rate means that
the RBI is ready to borrow money from the banks the RBI is ready to borrow money from the banks
at a higher rate of interest. As a result, banks at a higher rate of interest. As a result, banks
would prefer to keep more and more surplus would prefer to keep more and more surplus
funds with RBI.funds with RBI.

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RESERVE BANK OF INDIA
FISCAL POLICY :-word Fiscal is taken from
French word Fisc it means treasure of Govt. So we can
define fiscal policy as the revenue and expenditure
policy of Govt. of India .Through this policy , Govt.
collects money from his different resources and utilize
it in different expenditure . Thus fiscal policy is related
to development policy .
 Techniques of Fiscal Policy
Taxation
Govt. Expenditure Policy
Deficit Financing Policy
Public Debt Policy

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SOURCES OF CREDIT/LOANS
INFORMAL SOURCES
INFORMAL SOURCES :-THERE IS NO
INSTITUTION TO CHECK THE WORKING AND
CREDIT DISBURSING CONDITIONS OF THIS
SOURCE.
FLEXIBLE RATE OF INTEREST WITH
OUT GIVING PRIOR INTIMATION . IT
MAY VARY PERSON TO PERSON
EXORBITANT RATE OF INTEREST.
ILLEGAL MODE OF REMDEMPTION OF
LOANS , INTERST FROM THE CUSTOMER

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SELF HELP GROUP
A self-help group (SHG) is a village-based
financial intermediary usually composed of
10–20 local women.
This organisation accepts minimum amount as
a deposits from the member
EASY LOANS AT A SUSIDIED RATE.
 UNTIL MARCH 2003 THERE WERE
7,17360 SELF HELP GROUPS.
NABARD estimates that there are 2.2 million
SHGs in India

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What is the importance of self help
group in india?
1.improve efficiency of the credit system
2.channel of financial conclusion
3.resource mobilization
4.promote savings and banking habit
5.improve the living condition of the poor
6.empowerment of women
7.promote social and economic justice
8.community actions
9.develop individual skills of the community
members
10.livelihood finance and employment generation
11.reduce influence of unorganised sector
12.benificial to the financial sector

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Money is any good that is widely used and accepted
in transactions involving the transfer of goods and
services from one person to another.
ROBERTSON :- “ANY COMMODITY THAT FULL FILLS THE
RESPONSIBILTY OF PAYMENT AND OCCUPATION IS CALLED
MONEY”
G.D.H.KAUL :-“ANY GOODS WHICH IS READILY ACCEPTED
TOWRDS PAYMENTS AND CREDIT IS CALLED MONEY.”
KENT :- “ANY THING WHICH IS READILY ACCEPTED A
NEASURE OF VALUE DURING TRANSACTION IS CALLED
MONEY.”
QUICK REVIEW

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RECAPITULATION
 What is a money?
 What are the functions of money
 What are the formal source of credit?
 What are the informal source of credit?
 What is CRR?
What is a Repo rate?

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THANKS YOU