ECONOMIS CHAPTER 3
Money and Credit
Barter System : Goods are
exchanged without use of money.
Double Coincidence of wants : In exchange of goods both parties
have to agree to sell and buy each others commodities. In a barter system
double coincidence of wants is an essential feature.
Medium of Exchange : Money
act as an intermediate in the exchange process. Currency is authorised by the
government as medium of exchange.
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People deposit extra cash with the banks by
opening the bank account in their name.
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The deposits in the bank accounts can be
withdrawn on demand, these deposits are called demand deposits.
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A check is a paper instructing the bank to pay a
specific amount from the persons account to the person in whose name the cheque
has been made.
Loan Activities of Banks :
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Banks in India these days bold about 15% of
their deposits as cash.
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Kept as provision to pay the depositors who
might come to withdraw money from the bank on any given day.
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Bank use the major portion of the deposits to
extend loans.
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Difference between the interest rates is the
main source of income for banks.
Terms of Credit :
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Interest rate
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Collateral G-L
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documentation requirement.
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the mode of repayment.
the varying terms of credit in different credit
arrangements.
Formal Sector Credit in India
Loans from banks and co-operatives Functions of
Reserve banks. - Issues currency notes on behalf of the central government.
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RBI monitors the banks are actually maintaining
cash balance.
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RBI collect information from banks, how much
they are lending to whom, at what interest rate etc.
Informal Sector Loans
The informal lenders, traders,
employers, relatives and friends etc.
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There is no organisation which supervise the
credit activities of lenders.
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They can lend at what ever interest rate they
choose.
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