...The Role of Banks in a Market Economy The presence of banks are crucial for the economy of each country in the world, since no expansion or growth can be obtained unless the savings of money are funneled into investment efficiently. In this aspect, the shortage of a full-fledged banking and investment system has been identified multiple times as a clear cut weakness of the centrally enforced and planned economies. Reforming the banking sector in former countries unlike the United States, that displayed communism and creating a new and improved culture of trust and confidence has been an important task in the process of transition to a market economy. In the financial system that we have as a dominant country, different flow from those people who have extra funds to those who don’t have a lot of funds, either by direct deposit, financing that is market based or by an indirect finance that has a bank based. The financial system brings together and involves all types of financial markets, financial instruments and any other of the institutions involving the financial system. The main issue that everyone wants to know is whether the make up of our financial system exhibits the potential for economic growth? The answer to the million dollar question is yes our system does exhibit economic growth. “According to cross-country comparisons, individual country studies as well as industry and firm level analyses, a positive link exists between the sophistication of the financial system...
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...Role of the Central Banks and their involvement with Government Fiscal Policy Introduction: The central bank is the public sector bank of a country which owned by the government and not by the private sector. It is responsible for major financial, economic status of a country. It is also responsible for various policies that control the economic situation of a county which includes the monetary and the fiscal policy which are intended to run a country with at a stable state of economy. The central bank has also has the responsibility for the issue of currency and also holds hold deposit it for other private sector banks. Examples of Central banks: The bank of Canada, Federal reserve, European central bank, the bank of England, The reserve bank of India etc. The Roles: Different central banks have some different goals but most of them have common goals. The major roles are setting up and marinating a monetary policy, fiscal policy and bank notes. These policies are created to maintain stability in an economy. Following the policy will intern takes its responsibility towards the next level by taking responsibility in maintaining price stability in an economy; it acts as the bank for the government. The central bank is the lender of loss resort and it controls the supply of money and taxation policies in an economy. It is responsible to monitor the banking system of the country. It controls the interest rates by buying selling of bonds, it also watches over the cash reserve...
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...Different roles of banks, government, central banks, in controlling the business cycle. Bank is a financial intermediary that uses liquid assets in the form of bank deposits to finance the illiquid investments of borrowers. Banks can create liquidity because it isn’t necessary for a bank to keep all of the funds deposited with it in the form of highly liquid assets. Except in the case of a bank run—which we’ll get to shortly—all of a bank’s depositors won’t want to withdraw their funds at the same time. So a bank can provide its depositors with liquid assets yet still invest much of the depositors’ funds in illiquid assets, such as mortgages and business loans. 2.How money is created by banks through checking accounts and the role of the money multiplier. Multiplier The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves. In other words, it is money used to create more money and is calculated by dividing total bank deposits by the reserve requirement. The multiplier effect depends on the set reserve requirement. So, to calculate the impact of the multiplier effect on the money supply, we start with the amount banks initially take in through deposits and divide this by the reserve ratio. If, for example, the reserve requirement is 20%, for every $100 a customer deposits into a bank, $20 must be kept in reserve. However, the...
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...Name: Ogayo Julius Muga Diploma in Business Management University of Nairobi BANKING & INSURANCE CENTRAL BANK A central Bank is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. The central bank often also oversees the commercial Banking system within its country. A central Bank is distinguished from a normal commercial bank because it has a monopoly and creating the currency of that nation, which is usually that Nations legal tender. Central Bank of Kenya is the highest Banking institution in the country and responsible for ensuring the smooth working of banking sector and other financial institutions. Central Bank differs from commercial banks in that it does not engage in ordinary banking activities e.g. accepting deposits from the general public. It is owned by the government while commercial banks are owned by shareholders. CBK usually implements certain government policies. OBJECTIVES OF CENTRAL BANK OF KENYA i. To formulate and implement monetary policy directed to achieving and maintaining stability in the general level of prices. ii. The Bank fosters the liquidity, solvency and proper functions of a stable market based financial system. iii. Support the economic policy of the government including its objectives for growth and employment. iv. Formulate and implement foreign exchange policy v. Hold and manage its foreign exchange reserves. vi. License and...
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...Supervision of the banking system: Central bank supervises the banking system of the country. Central may be responsible for banking system. They collect information from commercial bank and take necessary decision by two ways- a) bank examine and b) bank regulation 2. Advising the government on monetary policy: The decision on monetary policy may be taken by the central bank. Monetary policy refers to interest rates and money supply. The central bank will corporate with the government on economic policy generally and will produce advice on monetary policy and economic matters, including all the statistics. 3. Issue of banknotes: The central bank controls the issue of banknotes and coins. Most payment these day do not involve cash but cheques, standing order, direct debit, credit cards and so on. Nevertheless, cash is important as bank's cash holdings are a constraint on creation of credit, as we have seen. 4. Acting as banker to other banks: The Central bank will act as banker to the other banks in the country. As well as holding accounts with international bodies like IMF World bank. It is a common habit for the central bank to insist that the other banks hold non-interest bearing reserves with in proportion to their deposit. 5. Acting as banker to government: Normally a central bank acts as the government's banker. It receives revenues for Taxes and other income and pay out money for t6he government's expenditure. Usually, it will not lend to the government...
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...An investigation into the role of rural banks. The perspective of Kumawuman rural bank limited customers Chapter 1 CHAPTER 1 1.0 General Introduction 1.1 Background of the study Since its independence in 1957, the Ghanaian government has made several attempts to promote rural development in an effort to increase the living standards of the people who reside in rural areas (Kudiabor 1974). In the last three decades, the Ghanaian government has instituted new changes in government organization and developed new sources of rural credit to encourage private investment. The 1992 Constitution of the Republic of Ghana makes a commitment to rural development as part of a national strategy to improve the living conditions in rural areas. In spite of the name, rural banks are found in both rural and urban settings. They are supervised by both the central bank and the ARB Apex bank which is the umbrella bank for all rural banks. In recent times they have integrated into the payments and banking systems in the country though it is believed that they have existed informally for a very long time. The existence of rural banks has made banking available to the ordinary Ghanaian and has made it less frightening. Their operations include credit and deposit services for relatively poor clients. The generally expected roles of rural banks are to: 1. Mobilize savings from residents in the rural communities 2. Accept cash and cheques for the crediting of current and savings...
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...Role of banks in Economy • Life line of an economy (transfers money from surplus to deficit) • Credit provision (Fuels business, growth and Entrepreneurship) • Liquidity provisioning (Credit in times of urgent need) • Remittance of money, access to foreign exchanges and commodity markets • Risk Diversification Banking sector in UAE • Emirates NBD, Dubai Islamic Bank • ADCB, NBAD, ADIB • RAK Bank, FGB, Noor Bank • Standard Chartered, Barclays, Citibank, HSBC Sector Status (Healthy) • Most of the country’s biggest banks have transformed their business models in the past couple of years to get more money from services that command fees, such as asset management, brokerage and trade finance, rather than relying exclusively on interest from loans which have been compressed • Lenders have also largely cleaned up bad loans dating back from the financial crash of 2008, making them more resilient to any shocks. Total Debt/GDP is around 100% - 10% rise y-o-y. • Banks again anticipate a robust quarter. The provisioning cycle is fully behind and sector is expected to keep continued growth in commercial momentum. • In the first quarter of the year Emirates NBD led the sector with earnings ofDh1.67 billion, a 60 per cent year-on-year gain • Arqaam expects that the UAE banks that it rates will have a consolidated earnings growth of 15.9 % in the second quarter. Another agency expects the growth to be around...
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...Q5) International Monetary Fund (IMF) role is to stabilize the international exchange rates and promote liberal economic policies. IMF will also provide short-term loan to assist members to overcome short-term imbalance of payment problems. On the other hand, World Bank offers loans to members to finance productive investments as well as assisting developing countries in its economy so as to reduce poverty within the country. Singapore joins both IMF and World Bank under the Bretton Woods Agreements Acts in 1966, 3 August. Before we join to become IMF as a member, during the Singapore-Malaya separation, we had sought for their technical assistance and to act as a broker in the negotiation with Malaysia for a common currency and banking system. In order to so, IMF first conducted a preliminary study to identify the concerns of Singapore and Malaysia regarding the common currency issue. IMF then acts as a broker in the final round of negotiations between 10 June 1966 and 5 July 1966. Before joining World Bank as a member, Singapore had sought for 2 loans where the first loan of US$15 million was used for the construction of the first phase of the Pasir Panjang ‘B’ Power Station and the second loan of US$6.8 million was used to construct Johor River Water Project. As a pre-requisite for the loan, the World Bank then requested our government to set up statutory authority (Public Utilities Board [PUB]) to manage the utilization and repayment of the loan. The advantages...
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...and contribute for social development. From organizational context: Communication involves proper planning, decision making, controlling, directing, coordinating etc. and plays role to achieve organizational goal. From political context: Political parties depend on various media of communication to face their opposition and get power. Such as: Radio, television, newspaper, meeting, public gathering, press conference etc. Form religious context: Without proper communication it is not possible to give perfect concept about each religion to their followers. Religious group depend on interpersonal, intergroup and mass communication to preach their religion. From global context: Every nation of present world depends on each other in different affairs. For this reason UN, EU, NAFTA, SAARC, are formed to maintain international communication. From national context: Effective communication system helps general public to participate various government activities through their elected representatives and coordinate among the various government authorities and departments to develop socio-economic condition of the country. From the context of business: Effective communication aid management or owner to maintain good relation between internal (I,e employees) and external parties (i.e. Bank, tax authorities etc.) to maximize production, sales, and profit of the business or industry. From financial context: All financial matters of various organizations and parties...
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...the onset of modern industry in the country, the need for government regulated banking system was felt. The British government began to pay attention towards the need for an organised banking sector in the country and Reserve Bank of India was set up to regulate the formal banking sector in the country. But the growth of modern banking remained slow mainly due to lack of surplus capital in the Indian economic system at that point of time. Modern banking institutions came up only in big cities and industrial centres. The rural areas, representing vast majority of Indian society, remained dependent on the indigenous money lenders for their credit needs. source: http://www.competitionmaster.com/ArticleDetail.aspx?ID=41e9ef66-3271-418d-b344-09f76d6f59a1 Independence of the country heralded a new era in the growth of modern banking. Many new commercial banks came up in various parts of the country. As the modern banking network grew, the government began to realise that the banking sector was catering only to the needs of the well-to-do and the capitalists. The interests of the poorer sections as well as those of the common man were being ignored. In 1969, Indian government took a historic decision to nationalise 14 biggest private commercial banks. A few more were nationalised after a couple of years. This resulted in...
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...ROLE OF BANK IN INDIAN ECONOMIC GROWTH TOWARDS THE BEGINNING OF TWENTIETH CENTURY,WITH THE ONSET OF MODERN INDUSTRY IN THE COUNTRY,THE NEED FOR GOVERNMENT REGULATED BANKING SYSTEM WAS FELT.SO IN 1969,INDIAN GOVERNMENTR TOOK THE HISTORIC DECISION TO NATIONALISE 14 BIGGEST PRIVATE COMMERCIAL BANKS.THE NEW GENERATION PRIVATE BANKS HAVE NOW ESTABLISHED THEMSELVES IN THE SYSTEM AND HAVE SET NEW STANDARDS OF SERVICES AND EFFICIECY. WHILE IT IS QUITE EVIDENT THAT INCLUSIVE GROWTH IS IMPERATIVE FOR ACHIEVING THE EQUITY OBJECTIVE,WHAT IS PERHAPS,NOT SO OBVIOUS IS WHY INCLUSIVE GROWTH IS NOW CONSIDERED ESSENTIAL EVEN TO SUSTAIN THE GROWTH MOMENTUM. IN MANY OF THE EMERGING MARKET ECONOMICS,THE MAJOR OF THE CHUNK POPULATION IS IN RURAL AREAS.SIGNIFICANT INCREASE IN DEMAND FOR MANUFACTURING AND SERVICESSECTORS HAS TO COME FROM RURAL POPULATION.THE AVERAGE MONTHLY PER CAPITA CONSUMPTION EXPENDITURE IN URBAN AREAS OF COUNTRY IS ALMOST DOUBLE THAN OF ITS RURAL AREAS.THE GROWTH IN AGRICULTURE IS NECESSARY TO KEEP MANUFACTURING PRICES UNDER CHECK,PROVIDE FOOD SECURITY AND KEEP INFLATION UNDER CONTROL. LIMITATIONS ON INCREASING PRODUCTION AND PRODUCTIVITY IN AGRICULTURE ARE DRIVING MIGRATION TO URBAN AREAS,LEADING TO POPULATION PRESSURE IN THESE AREAS AND EXERTING FURTHER STRESS ON EXISTING ON INFRASTRUCTURE. BANKING SYSTEM AND FINANCIAL INSTITUTION...
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...THE ROLE OF BANKS IN STEERING ECONOMIC GROWTH IN MALAWI INTRODUCTION Economic growth remains a challenge in Malawi since the country attained multiparty system of government. According to the 2015 World Bank report, both political and civilian discourse on the 50 years of independence has centered on the high levels of poverty which is still above 50 percent of the population, with one quarter in extreme poverty. Reliance on donors to support on the other hand, has not done much in the same respect. The World Bank report again says Malawi’s GDP growth rate remained stable in 2014 estimated at 5.7 percent, but projected to slow down to 5.1 percent in 2015. In 2014 growth was driven by expansion in the agricultural, information and communication, and wholesale and retail trade sectors, but the pace is expected to slow down in 2015 mainly due to adverse weather which affected agricultural production and subsequently manufacturing. While the floods that Malawi experienced in January 2015 have a significant human cost, the expected impact on GDP growth is muted, estimated at 0.6 percent. Downside risks to growth however remain including a continued high rate of inflation averaging 23.8 per cent in 2014, high interest rates above 40 per cent, and a weak fiscal environment. Fiscal discipline alone, does not guarantee economic prosperity, if Malawi is to come out of the abject poverty that has rocked more than 50 percent of its population. Monetary policies available should spearhead...
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...What are the roles and functions of central banks? Why do they need Economic staff? How far should central banks get involved in data collection and areas such as seasonal adjustment, as well as economic analysis? Introduction Though Central Bank is viewed as one of the primary mechanisms of macroeconomic stabilization there are a number of arguments about other areas of Central Bank’s involvement. This paper will explore the different areas, including the role of Central Bank in effecting monetary policy and intervening body in exchange rate trades, Central Bank as a Last Lender Resort (LLR), and Central Bank as a regulatory body of the financial sector. Prior to further discussion, it is important to stress that the role of Central Bank and the scope of its involvement may vary due to the effect of different legislations and the presence of various stakeholders. Thus, US Central Bank does not act as a regulatory body of the financial sector (Driffill et al., 2005), whereas the intervention activity of Japan Central Bank requires the approval of other governmental bodies (Fujiwara, 2005). This paper discusses the importance of Central Bank's publications of economic forecasts and other information related to Central Bank's views of the further state of macroeconomic trends. The discussion shows that this information is highly important for other market players and forecasting agencies as it reduces the information asymmetry. The role of Central bank in macroeconomic stabilization ...
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...1. Define Finance. Discuss the principles of Finance. According to L J Gitman, “Finance is the art and science of managing money.” Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among and between individuals, business and governments. Finance deals with-Financing, investment and dividend. Principles of Finance * Principles of risk and return: It says, “No risk, No gain” * Principles of time value of money: while making any investment decision, time value of money should be considered. * Principles of Liquidity and Profitability: Need balance of liquid money. * Principles of Perfection: Current assets, fixed assets should be collected with careful consideration. * Principles of Business Cycle: Business depends on various economic conditions (Boom-Recession-Depression-Recovery-Boom.) * Principles of Diversification: Do not put all eggs in one basket. 2. The ultimate goal of a business is to maximize wealth, not profit maximization-Explain. Shareholder’s Wealth Maximization means maximizing the price of the firm’s common stock. It means to increase the net present value of a firm. Shareholders' wealth is maximized when a decision generates net present value. The net present value is the difference between present value of the benefits of a project and present value of its costs. A decision that has a positive net present value creates wealth for shareholders and a decision that has a negative...
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...and is a result of findings about financial inclusion sand its direct correlation to poverty. Financial inclusion is now a common objective for many central banks among the developing nations. Joint Liability Groups (JLGs) of the poor such as landless, share croppers and tenant farmers is another innovative mechanism towards ensuring greater financial inclusion. This mechanism has already been operationalised in a few regions under a Pilot Project of NABARD. Commercial Banks have been actively promoting such groups for effectively purveying credit and other facilities to such clients. In the current budget the govt. has earmarked a sum of Rs 100 Crores for Banks to open branches in un banked and difficult areas. Biometric card based authentication devices, are being used by the bank’s Business Correspondents at the villages. So far, 344 districts have been identified by State Level Bankers Committee for 100 per cent financial inclusion. As a result of the campaign of the public sector banks, 175 districts in 21 States and 7 Union Territories have reported having achieved the target. The self-help group (SHG)-bank linkage Programme has emerged as the major micro-finance Programme in the country and is being implemented by commercial banks, RRBs and co-operative banks. As on March 31, 2008 3.6 million SHGs had outstanding bank...
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