Chapter 16:- Money and banking 16.1 Money:The main form of money used in countries are coins, notes, and bank accounts. Coins are often used to make small purchases and are given in change. There are number of ways to transfer money from one bank to another. These include direct debits, credit cards, and mobile phones. Functions of money: Medium of exchange :- Money allows people to buy and sell products. In carrying out this function, money is said to acta as a medium of exchange. Store of value :- Enabling people to exchange products is money’s most important functions. Acting as a store of value means that money can be saved. Unite of account:- This function of acting as a unit of account , enables buyers and sellers to agree on what items are worth, relative to each other. Standard of deferred payments:- This means that money allows people to borrow and lend. Characteristics of money: - To act as money, an item does not need to have intrinsic value. The main types of characteristics of money is : Durable Portable Divisible Homogenous Recognisable. 16.2 Banking The role and importance of commercial banks: The first function: - Enables customers to keep their money in a safe place. Deposits can be made in two types of bank accounts. One is current account, other is called demand account. There is easy and immediate access to money in this type of account. The second function: - Enables customers to spend more then what is in her or his account, up to an agreed limit. This can be relatively expensive way of borrowing and is mainly used to cover short-term gaps between expenses and income. The third function: - Enables their customers to receive and make payments. This is referred to as acting as agent for payments and providing money transmission services. The aims of commercial banks: The key aim of a commercial bank is to make profit for its shareholders. The main way it does this is by giving loans. Another aim which can conflict with the key aim what is known as liquidity. Role and importance of a central banks: Acts as a banker to the government: - Tax revenue is given to government through central bank and payments for goods and services is done by this account. Operates as a banker to the commercial banks:Holding accounts at the central bank enables commercial banks to settle debts between each other and to draw out cash. Acts as a lender of last resort: - Lend to banks who are short of cash. Manages the national debts:- The total amount government owes. Ove time, government debts tend to build up. Hold the country’s reserves of foreign currency and gold :- Keeps the gold and foreign currency for exchange rate. Issues bank notes:- Central bank is responsible for printing notes and destroying notes which are no longer suitable for circulation. Implement the government monetary policy:Controlling the money supply and influencing interest rates throughout the economy. Controls the banking system :- Many central banks play key role in supervising and regulating. Represents the governments:- Meeting with others central banks and international organisation such as the world bank. Key terms:Money: - Sn item which is generally acceptable as a means of payments. Commercial banks: - Banks which aim to make a profit by providing a range of banking services to household and firms. Liquidity: - Being able to turn an asset into cash quickly without any loss. Central banks :- A government owned bank which provides banking services to the government and commercial banks and operates monetary policies.