Broad money and narrow money

7/22/2019 Broad money and narrow money

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Moneyis any object or record that is generallyaccepted as payment for goods andservices and repayment of debts in a givensocio-economic context or country.

Money is a financial asset that serves threefunctions in the real economy.

o Serves as a medium of exchange

o Serves as an unit of accounto Serves as a store of value


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Reserve money , Broad money and Narrow are thecomposition of Money Supply.

MONEY SUPPLYThe total stock of money circulating in an

economy is the money supply. The circulatingmoney involves the currency, printed notes,money in the deposit accounts and in the form ofother liquid assets.

Money supply plays a crucial role in thedetermination of price level and interest

rates.Growth of money supply helps inacceleration of Economic development and pricestability


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NARROW MONEYMoney held for immediate currentspending or Transaction process.

BROAD MONEYIt is a measure of the money supply

that includes more than just physical money.

o Money held for transaction purposes andmoney held in the form of savings or store ofvalue.


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In the 13th century, paper money became known in Europe through the

accounts of travelers, such as Marco Polo and William ofRubruck.Marco Polo's account of paper money during the YuanDynastyis the subject of a chapter of his book, The Travels of Marco Polo,titled "How the Great Kaan Causeth the Bark of Trees, Made intoSomething Like Paper, to Pass for Money All Over his Country.

In medievalItalyand Flanders, because of the insecurity andimpracticality of transporting large sums of money over long distances,money traders started using promissory notes. In the beginning thesewere personally registered, but they soon became a written order to paythe amount to whoever had it in their possession. These notes can be

seen as a predecessor to regular banknotes.The first Europeanbanknotes were issued by Stockholms Banco, a predecessor of the Bankof Sweden, in 1661.These replaced the copper-plates being used insteadas a means of payment,although in 1664 the bank ran out of coins toredeem notes and ceased operating in the same year.
http://en.wikipedia.org/wiki/William_of_Rubruckhttp://en.wikipedia.org/wiki/William_of_Rubruckhttp://en.wikipedia.org/wiki/Yuan_Dynastyhttp://en.wikipedia.org/wiki/Yuan_Dynastyhttp://en.wikipedia.org/wiki/The_Travels_of_Marco_Polohttp://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikipedia.org/wiki/Middle_Ageshttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Count_of_Flandershttp://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Stockholms_Bancohttp://en.wikipedia.org/wiki/Bank_of_Swedenhttp://en.wikipedia.org/wiki/Bank_of_Swedenhttp://en.wikipedia.org/wiki/Bank_of_Swedenhttp://en.wikipedia.org/wiki/Bank_of_Swedenhttp://en.wikipedia.org/wiki/Stockholms_Bancohttp://en.wikipedia.org/wiki/Stockholms_Bancohttp://en.wikipedia.org/wiki/Stockholms_Bancohttp://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Count_of_Flandershttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Middle_Ageshttp://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikisource.org/wiki/The_Travels_of_Marco_Polo/Book_2/Chapter_24http://en.wikipedia.org/wiki/The_Travels_of_Marco_Polohttp://en.wikipedia.org/wiki/Yuan_Dynastyhttp://en.wikipedia.org/wiki/Yuan_Dynastyhttp://en.wikipedia.org/wiki/William_of_Rubruckhttp://en.wikipedia.org/wiki/William_of_Rubruck


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Inspired by the success of the London goldsmiths, some of whichbecame the forerunners of great English banks, banks began issuingpaper notes quite properly termed banknotes which circulated inthe same way that government issued currency circulates today. In

England this practice continued up to 1694. Scottish bankscontinued issuing notes until 1850. In USA, this practice continuedthrough the 19th Century, where at one time there were more than5000 different types of bank notes issued by various commercialbanks in America. These banknotes were a form of representativemoney which could be converted into gold or silver by application

at the bank. Since banks issued notes far in excess of the gold andsilver they kept on deposit, sudden loss of public confidence in abank could precipitate mass redemption of banknotes and resultin bankruptcy.

The Bank of England was granted sole rights to issue banknotes inEngland after 1694. In the USA, the Federal Reserve Bank wasgranted similar rights after its establishment in 1913. Until recently,these government-authorized currencies were forms ofrepresentative money, since they were partially backed by gold orsilver and were theoretically convertible into gold or silver
http://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Banknote


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Money is a good that acts as a medium ofexchange in transactions. Classically it is said thatmoney acts as a unit of account, a store of value,and a medium of exchange.

Quantity of money- Money quantity is thenominal value of particularly "liquid" financialinstruments in an economy. "Liquidity" means

that an asset is easy to sell in any moment withsmall or no losses in respect to nominal price.


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Cash

Bank Deposit


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function of cash. Consumersspend cash to fulfill their primary (basic)

needs like food, clothing, shelter, education, etc. They alsospend cash to satisfy their ancillary needs such asentertainment, buying luxurious goods, tourism, so on.

Entrepreneursaccumulate cash in the form of profitsearned by providing goods and services to consumers.They use this profit for the expansion of business. Someamount of this profit is then distributed among investorsand is also used for maintaining reserves to meet

contingencies. Employeesor workers get a return for their work in form

of salaries (wages), short-term benefits and allowances likemedical and travelling allowance, and long-term benefitssuch as provident fund, gratuity, pension and so on.

The function of a cash is a continuous and never-endingprocess.
http://kalyan-city.blogspot.com/2011/03/what-is-business-meaning-definitions.htmlhttp://kalyan-city.blogspot.com/2011/03/what-is-business-meaning-definitions.htmlhttp://kalyan-city.blogspot.com/2011/03/what-is-business-meaning-definitions.html


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Bank Deposit Meaning:In deposit terminology, the term Bank Deposit refers to anamount of money in cash or check form or sent via a wiretransfer that is placed into a bank account. The target bankaccount for the Bank Deposit can be any kind of account thataccepts deposits.

Bank Deposit Example:For example, a Bank Deposit is generally made when opening anaccount or in the course of routine business or personaltransactions that involve placing funds with the bank for futureuse. Bank deposits can be made in a number of different ways.The most direct way is to walk into a bank or a bank branch inwhich you hold an account. You are then usually required to fillin a Bank Deposit slip with the particulars of your account andthe amount of money you wish to deposit. In addition, BankDeposits can be made via wire transfer, as well as through adirect deposit plan from employers in many cases.


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Three types of bank deposits for investors

Savings accounts

Cash management/savings maximiser accounts Term deposits


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Increasing Investment

Security

Diversification of investment plans Facility of lockers


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o Mo Mo Mo Mo Mo M


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M(M-zero) is the most liquidmeasure of the money supply. It onlyincludes cash or assets that couldquickly be converted into currency.This measure is known as narrowmoney because it is the smallestmeasure of the money supply.

M- Reserve Money


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Mas a definition of a countrys money supplyfocuses on money's role as an exchange medium. Acustomer paying for groceries can use coins, papercurrency or write a check. All of these paymentmethods are part of M. Demand deposits andchecking accounts have become increasinglypopular as an exchange medium with the advent of

ATMs and debit cards. M=Currency with public + Demand deposits with

the Banking system + Other deposits with RBI


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Mis a broader money classification thanM, because it includes assets that arehighly liquid but not cash. A consumer or

business typically wont use savingsdeposits and other non-Mcomponents ofMwhen making purchases or paying bills,but it could convert them to cash in

relatively short order. M=Mand Saving Deposits with post

office.


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Mis a broadest measure of money. Memphasizes money as a store-of-value morethan money as a medium of exchange. It is

more closely related to the finances of largerfinancial institutions and corporations thanto those of businesses and individuals.

M

= M

and time deposits of all commercialand corporative banks

M= Reserve money * Money Multiplier


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India money supply M3


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Development in total turnover:

Total turnover in money-market lending has decreased by 37per cent since 2007, to a daily average of kr. 56 billionThe most remarkable fall is seen for lending, which hasdropped by 47 per cent.

The higher counterparty and liquidity risks resulting from thecrisis have thus led the banks to transfer much of their money-market trading to the collateralised market.

DEVELOPMENT IN TOTALLENDING TURNOVER,BROKEN DOWN BY

PRODUCTS ANDMATURITIES

DEVELOPMENT INTURNOVER OF DEPOSITSBROKEN DOWN BYMATURITIES


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1) The Co existence of organised and un organised sectors:Its a peculiar feature of Indian market is that coexistence of organised and un organised sectors.

The organised sector consists of Reserve Bank of India,

SBI and its affiliates, Commercial banks, The RBIsupervises these banks.

Indigenous banks bankers and other belong to unorganised sector and this sector is not coming under

the purview of RBI.2) Lack of Integration: Indian market is divided into

several segments. The various segments of Indianmarket is not well connected. Its leads to unhealthy

competition among the segments.


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3) High Volatile Money market: The importantfeature of Indian market is the seasonalstringency of funds. The money rates fluctuates

4) Diversified Money rates: Funds cannot movefrom one section to another, money rates ofinterest differ.

5)Absence of well organised bill market: Themarket for government and semi governmentsecurities is not popular.

6) Limited availability of credit resources: Indianmoney market does not have adequate shortterm credit instruments.


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8) Few Lenders: The Lenders in market arefew and borrowers are large in number.

9) Shortage of Capital: Market is facing theproblem of capital shortage. Hence itcannot meet the requirements of trade

and commerce.


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Electronic form of money Soon- consumers will no longer need to carry paper, coins

or plastic to make their purchases! With the upcoming

launch of Google Walletand ClearXChange, consumers

will be able to use their handy smartphones when theyre

on the go to pay for their purchases
http://www.creditdonkey.com/google-wallet/http://www.creditdonkey.com/google-wallet/


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Mont

h DateForecast

Value50%

Correc

t +/-80%

Correct

+/-0 Nov2013 62.52 0.0 0.01 Dec

2013 61.2 0.4 0.92 Jan 2014 61.5 0.6 1.33 Feb 2014 60.3 0.7 1.64 Mar

2014 59.9 0.8 1.85 Apr 59.2 0.9 2.1

India Rupee per U S Dollar CurrencyExchange ForecastIndian Rupee per One United States DollarAverage of Month
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The indian economy is vastly affected by themoney supply and money market.

Money supply effects the economy on three sides.

control the inflation in an economy growth of an economy

interest rates

From barter sytem to silver/gold coins to presentpaper currency,impact of money has been samethroughout and the future is certainly uncertain.


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Broad money and narrow money

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