Money and Banking

Money And Banking
MONEY
What is money?
Money is anything that is accepted as a means of payments
for goods and service
Functions of Money
1. A medium of exchange
Money is generally accepted as a means of payment for most
goods and services.
2. A measure of value/unit of account

money is used to compare the worth of different goods and
services.
3. A store of value
Money allows people to store/keep their wealth over time.
4. A standard for deferred payments

This means borrowers are able to borrow money and pay it
back at a future date.
Characteristics of money
1. Acceptability
This means money should be generally acceptable in society
as a medium of exchange.
2. Portability
Money should be easy to carry from one place to another.
3. Durability
Money must be strong and durable so that they can act as a
store of value.
4. Divisibility
Good money is that which could be divided into small units
without it losing value.
5. Scarcity
Money needs to be relatively scarce if people and firms are
to value it.
6. Stability of value
This means the value of money should not change over time..
7. Recognisable
It should easily be recognised in an economy.
8. Uniformity
Every note and coin of a particular value used in an economy
should be the same in all aspects
Forms of money.
 Notes
A note is a form of money used to buy more expensive items.
 Coins
A coin is a form of money used to make small purchases and
given in change.
 Bank account
This is a form of money responsible for largest proportion of
payment made.
What is a legal tender?

A legal tender is any form of payment which, by law, has to
be accepted in settlement of debt.
BANKING
Central bank
What is a central bank?
A central bank is a government-owned bank which provides
banking services to the government and commercial banks
and operates monetary policy
.
Features of a Central Bank
1. It is owned by the government
2. Its objective is to create price stability.
3. It is only one in a country
4. It issues note and coins.
5. It intervenes in foreign exchange markets to influence the
exchange rate
6. It is lender of last resort to banks
The role of central bank

1. Acts as a bank to the government
The Central Bank keeps the revenue raised by the
government. The government also makes payments of goods
and services through Central Bank
2. Issues banks notes and coins
3. Acts as a banker to the commercial banks

Commercial banks hold accounts at Central Bank. Holding
accounts at the Central Bank enables commercial banks to
settle debts among each other and to draw out cash..
4. Acts as a lender of last resort

This means it will lend to banks which are temporarily short
of cash.
5. Implements monetary policy

The central bank controls money supply and changes the
rate of interest
6. Manages the national debt

This means the Central Bank borrows on behalf of the
government and repays the government loans.
Importance of central bank for producers

1. Through influencing the interest rate, if interest rate
falls, producers will be more able and willing to borrow
money to expand their businesses.
2. The regulation of commercial banks affects their

ability to lend and creating confidence for their survival.
Importance of commercial bank for consumers

1. As the central bank regulates commercial banks
consumers develop more confidence to deposit their
money in commercial banks.
2. Through the monetary policy central banks change the

interest charged for borrowing by consumers and the
amount they receive on their deposits.
Commercial banks
A commercial bank is a private sector bank which aims at
making profits by providing a range of banking services.
The roles of commercial banks

1. Accepting deposits/allow people to save.
2. Lending/provide loans.
3. Allowing customers to make payments
4. Providing a range of other financial services e.g. insurance
Importance of commercial bank for government

1. Commercial banks facilitate the implementation of the
monetary.
2. They stimulate economic growth by lending money to
producers which promotes investments.
3. They provide employment
Importance of commercial bank for producers

1. They provides loans to business which facilitates
business expansion
2. They provide foreign exchange which helps in exporting
and importing
3. They provide financial and tax planning advice to
producers.
Importance of commercial bank for consumers

1. Consumers are safely able to save their money in the
commercial banks and by doing so they earn interest.
2. They lend money to consumers to buy expensive items.
3. Provide means such as mobile apps and debit cards that

consumers can use to make purchases without carrying
cash.
4. They also offer credit cards that allow consumers

borrow for short periods to buy items immediately
without waiting until when they will have enough money.
Difference between central bank and commercial bank

1. A central bank is the bank of the government and
commercial banks whereas a commercial bank is the
bank of firms and households.
2. A central bank issues notes and coins which a commercial

bank cannot do.
3. A central bank implements monetary policy whereas a

commercial bank responds to monetary policy measures.
4. A central bank is owned by the government a commercial

bank is usually privately owned.

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Money And Banking

2. A measure of value/unit of account

4. A standard for deferred payments

What is a legal tender?

The role of central bank

3. Acts as a banker to the commercial banks

4. Acts as a lender of last resort

5. Implements monetary policy

6. Manages the national debt

Importance of central bank for producers

2. The regulation of commercial banks affects their

Importance of commercial bank for consumers

2. Through the monetary policy central banks change the

The roles of commercial banks

Importance of commercial bank for government

Importance of commercial bank for producers

Importance of commercial bank for consumers

2. They lend money to consumers to buy expensive items.

3. Provide means such as mobile apps and debit cards that

4. They also offer credit cards that allow consumers

Difference between central bank and commercial bank

2. A central bank issues notes and coins which a commercial

3. A central bank implements monetary policy whereas a

4. A central bank is owned by the government a commercial

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