money and banking assignment pdf

Money and Banking

(7 reviews)

Robert E. Wright, NYU

Copyright Year: 2012

ISBN 13: 9780982043080

Publisher: Saylor Foundation

Language: English

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Reviewed by Nabila Rahman Biju, Assistant Professor of Economics, Berea College on 11/14/23

I really liked the fact that the first few chapters started with very basic ideas which makes it easier for the beginners to start in this field. And I like the think-boxes. read more

Comprehensiveness rating: 5 see less

I really liked the fact that the first few chapters started with very basic ideas which makes it easier for the beginners to start in this field. And I like the think-boxes.

Content Accuracy rating: 4

The discussion of moral hazard and the so called 'evil practice' is a good way to introduce students about the financial system's drawbacks. They should realize that this current system is not the best we could do so far. Rather, it the accumulation of historical accidents and there is plenty of room for improvements in this current system. So yes, I think the content was pretty unbiased.

Relevance/Longevity rating: 5

With all the detailed examples, I found it to be quite relevant. I am teaching Money and Banking class currently, and I can find most of my important topics in this book as well. So, yes, I will say this book is relevant.

Clarity rating: 5

The language of the book is really reader-friendly and as I mentioned before, I felt a non-Econ or non-Business background student also can easily understand.

Consistency rating: 4

The content and topics of each consequent chapters flow well.

Modularity rating: 5

It's already way too divided into sub-topics at least in my opinion. No need to break it down further.

Organization/Structure/Flow rating: 3

Although it is not an e-book and only a pdf, still, putting in a list of contents could be done. I strongly recommend to have a list of contents with hyperlinks linking to each chapter as it really helps. Especially when a person is re-reading, its really annoying to keep scrolling.

Interface rating: 2

Would be nice to have hyperlinks.

Grammatical Errors rating: 5

Good writing

Cultural Relevance rating: 4

I would expect more discussion of other countries also the ancient times. But it's still very relevant.

I liked it quite a bit. Only adding a list of content is the only thing I would ask for. Thanks!

Reviewed by Ulmaskhon Kalandarova, Instructor, Colorado State University on 1/2/21

Although the book covers majority of concepts in money and banking, but unfortunately it seems that all data is outdated and sometime the fundamental legislative laws like Dodd-Frank act not even mentioned. Also, more discussion of bank regulating... read more

Comprehensiveness rating: 3 see less

Although the book covers majority of concepts in money and banking, but unfortunately it seems that all data is outdated and sometime the fundamental legislative laws like Dodd-Frank act not even mentioned. Also, more discussion of bank regulating system is recommended - it is very brief in chapter-11. The revised and more comprehensive version of this book is recommended. For example, this book could compare its' contents with Cecetti's Money and Banking book, which is widely used in teaching this course.

Fundamental concepts seem to be discussed very well, but the demonstration data seems to be a bit loose.

Relevance/Longevity rating: 4

The text is written in clear prose. I did not have any difficulty with its understanding.

Consistency rating: 5

Text is consistent with terminology, however the modern terminology could be also included - like bitcoins, hi tech , mobile banking issues

Modularity rating: 3

Modularity needs to be revised and added more parts for practice, brief summaries, real-life examples.

Structure is outdated - need to include at least some practice problems and explanation of their solutions for some of them in the text. Also, real life examples section would be a plus. Also, brief summary of chapter's main points could improve this book.

Interface rating: 3

I think the book should be revised due to very outdated display features - it seems very old and comparing for example to Cecetti's book in money and banking - I would not choose this book for teaching - because it does not have many different informative, practice, learn sections as other books have.

I didn't find any grammatical errors in the text.

Cultural Relevance rating: 5

I would recommend to add more data from developing nations banking system for informative and comparison/analysis purposes. This could give a brief explanation of different factors that effect developing countries banking systems, and their special characteristics.

Reviewed by Peter Mikek, Associate Professor, Wabash College on 12/22/19

This is a great book for any student that is exposed to questions of money and banking for the first time.The book is certainly comprehensive in covering most of the money and banking topics, reaching a bit into macroeconomics and international... read more

This is a great book for any student that is exposed to questions of money and banking for the first time.The book is certainly comprehensive in covering most of the money and banking topics, reaching a bit into macroeconomics and international finance. The 26 chapters provide overview and numerous examples of standard Money and Banking courses/textbooks and, very likely, include more material than can be thoroughly covered in a semester course. The three chapters devoted totally to banking are complemented with standard coverage of monetary policy and well placed within macroeconomic framework. It is delightful that the focus on banks within financial sector is maintained through most of the text. The text includes a chapter on financial crisis, international finance, and several chapters reviewing and scaffolding a broader context for money and banking. I was puzzled by the fact that I could not locate the chapter of Financial Derivatives. However, I suspect that this was probably some error preparing the online PDF file. While the work is very broad in its scope the text in each sections is super focused and relatively short. While I am a fan of concise textbooks, I found it occasionally too limited (for example there is a chapter with only 6 pages of text that includes several unnecessary excursions into methodology and history).

Overall, I find the book very accurate and unbiased. In some sense the text strikes me as not completely polished but still great text. The remaining typos are not crucial for understanding and can be easily identified.Let me give you some examples: in an example of a balance sheet ,the author claim that liabilities are "things owNed," they place transaction deposits on one T account among bank's assets, in a scheme of a transmission mechanism they have an arrow turned the wrong way (EMP, net worth down), "nominal rates on risky securities had in fact soared in 1930-1933" should actually talk about the real rates, etc. Again, these are small remaining errors and a reader will be able to fix them easily as they go. I am convinced that the next iteration of the text will get rid of the remaining typos.

This is definitely one of the very strong attributes of this interesting text. The examples are definitely up-to-date as it includes examples from the recent financial crises and developments in international finance. But not only that, the author uses rich historical background artfully to place the more recent examples in historical context. This contributes to richer text and better understanding of several provided examples. I believe that the text will need relatively little in terms of updating it.

Clarity rating: 4

This is a fantastically clear presentation of ideas and concepts. The authors use Stop and Think boxes to expand upon the basic ideas with examples, Key Takeaways boxes to reiterate the most important points, Exercise boxes to provide hands-on opportunities. Each section starts with clearly spelled learning objectives. Super concise text leaves the reader with clear message. But maybe the most enjoyable feature of the text is vivacious, playful, and rich language. I am REALLY impressed with the rich vocabulary and engaging, occasionally truly erudite, nicely varied language ("if not insane, at least inane,” “Asymmetric information (that horrible three-headed hound from Hades),” “if you wrap your car around a tree,” etc.). The authors try to engage the average reader also with a number of colloquial expressions that are less to my taste ("those smakers," "kinda funny that," "darn high") but I guess that is just my taste.

The authors are consistent across the chapters, they use standard field specific vocabulary. I think they score high on this point.

This is another strong quality of the text. While some parts are absolutely essential in every Money and Banking text, such as time value of money or chapter on banking and one on monetary policy, there are parts that can easily be added or dropped based on preferences of the instructor. Chapters devoted to exchange rates or international monetary arrangements can easily be postponed to later courses. Similarly, students that already had a decent intermediate macroeconomics will not need chapters focused on macro. So, the text both allows for various arrangements of the building blocks in a variety of ways.

Organization/Structure/Flow rating: 5

The textbook follows a standard order in presentation of the material. Not only the sequencing but also parsing the material into logical units was done with the due care. This is actually essential for good learning success and they did if perfectly. Additionally, I already mentioned that each section has clearly spelled learning objective and Key Takeaways that contribute to transparent structure of the text. Finally, progression from one topic to the next is seamless and easy to follow.

Interface rating: 5

Navigation is easy and clear, the figures, excercises, Stop And Think boxes are clearly marked. The text consistently uses several different colors to indicate parts of the text or to emphasize this or that (such as tables). The interface is not only easy to use, it is also nicely appealing for the reader.

I found no issues with the grammar. Furthermore, I wish to emphasize again that the use charming and vivacious language.

I found the book to follow the usual standards regarding the cultural sensitivity and non-offensive language. Despite the fact that the book is devoted to functioning of a financial system in developed capitalist economy the text includes ample examples from across the globe - in particular in chapters on international finance. German reunification, Chinese high foreign reserves and exchange rate system, Argentine currency crises are just three of numerous examples that cross the cultural and geographical borders with ease and clarity.

This is an absolutely delightful text that uses fresh, clear, and playful language in the field that can be perceived as rather dry. The book will be best suited for beginners with first encounters with money and banking. For others, a skillful instructor can easy point out on what they should focus (and where are few remaining typos). The text is comprehensive and set in a way that will serve broad set of instructor's preferences; from those that wish to focus on international finance to those that wish to include some review of macroeconomics. One of the best attributes of the book is the fact that the author never loses its focus on banks and/or monetary policy. Overall, I find the text great.

Reviewed by Partha Gangopadhyay, Professor, St. Cloud State University on 6/10/19

The text provides a comprehensive coverage of Money and Banking topics. If anything, there is too much material in the book's 26 chapters for one course. Most colleges do not have more than one Money and Banking course. The book has enough... read more

The text provides a comprehensive coverage of Money and Banking topics. If anything, there is too much material in the book's 26 chapters for one course. Most colleges do not have more than one Money and Banking course. The book has enough material for at least two such courses. I did not see an index or a glossary of terms.

Content Accuracy rating: 5

I have not detected any error in the text. I checked out some of the hyperlinks to outside resources. The links seem to work just fine. I would like to see the sources of the tables and figures listed below the tables/figures in the book.

Relevance/Longevity rating: 2

The text needs to be revised and updated. The tables and figures in the book provide information up to 2007-2008. This applies to many of the tables/figures in chapters 9, 10, 11, 15, 16, 18, 19, 20, and 21. There is a brief discussion of banking regulation in chapter 11. However, I did not see even a mention of the Gramm-Leach-Bliley Act of 1999, or the Dodd-Frank Act of 2010, or the Basle 111 capital requirements. The discussion in the books seems to end with the Riegle-Neal Act of 1995, and the Basle 11 requirements. Also, the suggested readings at the end of the chapters need to include more current articles and other resources. The fundamental concepts of money and banking have not materially changed over time. The book does a good job of explaining these concepts. However, the banking laws and data and statistics have changed over time. These need to be updated. The book was written in 2012. It is time for a newer edition. The updates can be easily implemented.

The book is written in clear and concise language. Beginning students should not have any difficulty in reading and understanding the concepts. Students will also be able to personally relate to many of the examples and anecdotes that are spread throughout the book.

The writing style is consistent throughout the book. I also like the consistent layout of the chapters. Each chapter and section begin with a set of learning objectives, and ends with 'Key Takeaways', and a list of suggested readings. I also like the 'Stop and Think' boxes in each chapter.

I may be able to cover 10 or 11 chapters from the book in a sixteen-week semester. As I mentioned elsewhere, there is enough material in the book for at least two 'Money and Banking' courses. It will be easy to pick 10-12 chapters from the book to cover in a 'Money and Banking' class. The text is not overly self-referential, and most chapters can stand on their own. The text can be easily divided into smaller sub-units that can be incorporated in different courses.

The text and the individual chapters are logically organized. The order of the chapters is clear, and the concepts are presented in a coherent and logical manner.

Interface rating: 4

I did not detect any issues with interface. I suggest numbering the equations in chapters 4-7, 9, 14, 15, 17, 18, 20, and 21. Also, the sources of the various tables/figures should be listed below the tables or figures. Several exercises are included in chapters 4-7, 9, 15, 17, 18, and 21. I am assuming that the solutions to these exercises will be made available to the instructors in supplementary materials in the book's website. However, I suggest that the answers to at least some of these exercises should be provided in an Appendix at the end of the book. It will also be helpful if a section of conceptual questions and/or numerical exercises is added at the end of each chapter. I also suggest adding a section in chapter 4 (and in other chapters) showing how to calculate the time value of money (and bond prices) using a financial calculator.

I have not seen any grammatical errors in the book.

I did not notice any cultural insensitivity in the book.

The book is comprehensive in the coverage of Money and Banking topics. However, the book is very outdated. A new edition of the book with up-to-date discussion of the banking regulatory framework, and well as current data and statistics is needed at this point. The concepts are easy to understand, and the book is well-written.

Reviewed by Laura Carolevschi, Assistant Professor, Winona State University on 6/20/17

In its 26 chapters, the textbook covers a wide array of money and banking topics, as well as macroeconomics topics with monetary policy applications. The treatment of the subjects is clear, easy to follow and relevant with applied examples. No... read more

In its 26 chapters, the textbook covers a wide array of money and banking topics, as well as macroeconomics topics with monetary policy applications. The treatment of the subjects is clear, easy to follow and relevant with applied examples. No index or glossary was provided with the version that was reviewed.

The content is accurate, error-free and unbiased, at least in the sections I chose to review.

The theories discussed in the textbook are up-to-date, and will stand the test of time for a while. However, some of the data will need to be updated. I'm reviewing this book in 2017, and many of the graphs have data until 2007-2008.

The author uses a story-telling format that is easy to read and accessible to both beginners and advanced learners. The book has many examples that students might be able to relate to due to personal experience.

All chapters are using the same format. The terminology and concepts are used consistently throughout the text.

While the textbook covers a variety of topics, it is easily divisible into smaller sections. Each chapter is divided into several topics, and each sub-chapter is clearly organized around a single topic, while still easily integrating within the larger subject matter of each chapter. During a regular semester I am usually unable to cover an entire textbook, and I select some chapters to cover first, with a couple of chapters as "maybe", if we still have time at the end of the semester. This textbook can be easily organized in such a way.

The topics in the text are presented in a logical and clear fashion. The organization/structure/flow are consistent throughout the text. All chapters are organized in the same format, making the text easy to read and follow.

The text is free of any interface issues. Most images/tables/graphs were clear and easy to read. However, I encountered a couple of images that were unclear - on page 258, I could only read the names of the countries, but not the text in each box even after zooming in; the table on page 304 seems to not be visible in its entirety. Another thing that would make the book easier to navigate would be a table of contents with hyperlinks to each chapter. The .pdf version that I'm reviewing does not have it.

I could not find any grammar errors. (However, I found some typos - in a few instances, it seems that the space between the words is missing, likethis.)

The treatments of topics in this textbook is respectful of different cultures.

The book provides a comprehensive yet approachable coverage of several monetary policy issues. The format of the book make it versatile to several uses - as a standalone text in money and banking classes, or as supplementary reading in introductory or intermediary macroeconomics classes.

Reviewed by Wendy Usrey, Faculty Instructor, Colorado State University on 12/5/16

This book is fantastic in terms of the breadth of finance, money and banking topics. I have found that most money and banking texts have some of the topics I want to cover in my classes, but I have seen very few that contain all of the material I... read more

This book is fantastic in terms of the breadth of finance, money and banking topics. I have found that most money and banking texts have some of the topics I want to cover in my classes, but I have seen very few that contain all of the material I am looking for in one, easily digestible textbook. With 26 chapters covering everything from how money and banking applies to our everyday lives, to the theory of rational expectations and its implications for monetary policy, this book is so comprehensive I can easily see myself using it in several different finance classes as well as in various economics courses.

I have not seen any errors in terms of content or examples/problems in the text. However, some of the hyperlinks to outside resources are no longer working.

1. I was very excited to see all of the hyperlinks to external content (new stories, other texts, etc), but as mentioned above, quite a few of the hyperlinks are no longer working. Depending on the link this could be a relatively easy fix, but some of these sources may no longer exist and may need to be removed. While not particularly difficult, if the text refers to the content referenced by the link, portions of the text will need to be rewritten if the links are removed. I also noted a few places where the text is already in need of some updating, for example, the book does a good job of explaining the 2007-2008 Financial Crisis, along with concepts such as the “Lender of Last Resort” and monetary policy, but does not contain any discussion on quantitative easing. This was a very critical and important (as well as controversial) component of the Federal Reserve's response the Financial Crisis, so it should have been included in the text or added in an update.

Overall the text is written in a very accessible manner without sacrificing academic rigor. Concepts are explained fully but in such a way that students from a variety of backgrounds should be able to understand the content. As another reviewer mentioned, a glossary or index at the end of the text would be very useful for helping to navigate the text and find definitions of key terms quickly.

Terminology, writing style and framework remain consistent throughout the text.

Despite the amount of material, this text is very well organized. The content is broken up into manageable chunks with very clear learning objectives stated at the beginning and key takeaways at the end of each section. This format makes a big difference in terms of helping the reader stay oriented so they do not get lost in the world of financial jargon and concepts. I particularly liked how each chapter was organized with so many additional resources and references. I particularly like the clear chapter objectives, followed by learning objectives for each sub-section. The "suggested reading" at the end of each chapter, as well as the "stop and think" boxes make the text very approachable for students and give the instructor a lot of great ideas for incorporating outside content and examples into the class.

The order in which the topics are presented is also very good with progression between concepts fluid and intuitive, but hyperlinks referring to other parts of the text make it very easy for an instructor to teach the topics in an order that suits their individual class structure without the worry of having students end up "lost in the text."

The interface of the book is very easy to navigate. Content displays as expected and does not seem to be affected by the format (I reviewed both the web interface as well as the downloaded PDF version). One thing that would make navigation easier would be to add hyperlinks from the table of contents to the chapters in the downloadable PDF version. This feature is available when viewing on the web, but did not appear as an option once I downloaded the PDF.

No grammar or spelling errors were found during my review.

As expected from an academic text, there are no insensitive or offensive references in the text. Additionally, the information is easy to understand regardless of cultural background and can easily be used in diverse classes with little to no adaptation.

Overall I think this is a solid, well written text that contains a lot of relevant and useful information. The world of finance can be intimidating and the author does a wonderful job of helping make the subject matter approachable and interesting, particularly with the use of humor and clever chapter titles. I intend to use this text in several of my own classes that range from introductory up to intermediate level classes.

Reviewed by Mahmoud Al-Odeh, Assistant Professor, Bemidji State University on 6/10/15

This is a good textbook that covers a wide range of topics in the economic analysis theory and application. The book consists of 24 chapters that cover current topics related such as Interest Rates, Inflation, Rate of Return, Future and Current... read more

This is a good textbook that covers a wide range of topics in the economic analysis theory and application. The book consists of 24 chapters that cover current topics related such as Interest Rates, Inflation, Rate of Return, Future and Current Value of Money, Money Supply Process, Monetary Policy Tools and Foreign Exchange. The book also disscussed Balance Sheet and a T-account and provided strategies for Bank Management. The chapters include a good examples to be used in the classroom to explain the topic. The exercises at the end of each topic are extremely helpful and can be used as homework assignments.

I have reviewed several examples given in the book and I found that the book is accurate and contains no errors.

The content and the topics in the book is very good for introductory and intermediate economy classes. The examples provided are current and up-to-date. As any textbook, it is recommended changing and updating the content at least once every five years to include more relevant examples and case studies.

The book is written in a way that students can easily understand the content without difficulties. I also like the funny style (e.g. “grandma, bless her soul,” examples) and the creativity in writing the exercises. This creativity in writing will keep students more engaged with the book content. The examples are clear and short to the point.

The textbook is consistent in terminology and framework. The terms use in each chapter are consistent across the chapters. It is recommended to include a section (e.g. appendix) for key terms & definitions.

The chapters are organized and divided into subsections/subtopics with objectives that support the overall chapters’ objectives. These objectives that are listed at the beginning of each topic are very helpful to assess students’ knowledge. The examples provided in each chapter can be used by instructors to explain the topic in each chapter and to measure the achievements of specific objectives. Some of the features that I like in this textbook are: “key takeaways” sections summarize important points in the topic/chapter; “Suggested Reading” sections provide resources and links to be used for more information; “Stop and Think Box” sections provide discussion topics that make students think about the big picture of the chapter; and “exercises” sections can be used to assess students’ knowledge regarding specific chapter/topic objectives.

Excellent. The logical organization of the chapters made the topics presented more appealing and interesting to students. The book organized using components such as: topics objectives, explanations, examples, key takeaways, Stop and Think Box, and exercises. All these components made the structure of the book easy to follow.

Very good. I found no issues. For future improvements, it would be helpful if special techniques or applications used for writing equations. For example, the equation on page 63 “FV = PV(1 + i) n” it should be PV = FV/(1 + i) ^ n as it is summarized in “key takeaways” on page 66. Also, it is recommended separating the examples giving from the discussion or the explanation. It could be the explanation and discussion first and then section with “example X.X” heading to show an example.

No grammar issues found.

The text is not culturally insensitive or offensive in any way. The examples and topics provided are applicable in any country and for any cultural environment.

This is a good textbook that covers theory and application of the economic analysis. The book structure and the writing style made the topics easy to understand by students. It is highly recommended to be used for introductory and intermediate economy classes. The examples and exercises provided are excellent to be used as in-class activities and homework assignments.

Table of Contents

• Chapter 1: Money, Banking, and Your World
• Chapter 2: The Financial System
• Chapter 3: Money
• Chapter 4: Interest Rates
• Chapter 5: The Economics of Interest-Rate Fluctuations
• Chapter 6: The Economics of Interest-Rate Spreads and Yield Curves
• Chapter 7: Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities
• Chapter 8: Financial Structure, Transaction Costs, and Asymmetric Information
• Chapter 9: Bank Management
• Chapter 10: Innovation and Structure in Banking and Finance
• Chapter 11: The Economics of Financial Regulation
• Chapter 12: Financial Derivatives
• Chapter 13: Financial Crises: Causes and Consequences
• Chapter 14: Central Bank Form and Function
• Chapter 15: The Money Supply Process and the Money Multipliers
• Chapter 16: Monetary Policy Tools
• Chapter 17: Monetary Policy Targets and Goals
• Chapter 18: Foreign Exchange
• Chapter 19: International Monetary Regimes
• Chapter 20: Money Demand
• Chapter 21: IS-LM
• Chapter 22: IS-LM in Action
• Chapter 23: Aggregate Supply and Demand and the Growth Diamond
• Chapter 24: Monetary Policy Transmission Mechanisms
• Chapter 25: Inflation and Money
• Chapter 26: Rational Expectations Redux: Monetary Policy Implications

Ancillary Material

About the book.

The financial crisis of 2007-8 has already revolutionized institutions, markets, and regulation. Wright's Money and Banking V 2.0 captures those revolutionary changes and packages them in a way that engages undergraduates enrolled in Money and Banking and Financial Institutions and Markets courses.

Minimal mathematics, accessible language, and a student-oriented tone ease readers into complex subjects like money, interest rates, banking, asymmetric information, financial crises and regulation, monetary policy, monetary theory, and other standard topics. Numerous short cases, called "Stop and Think" boxes, promote internalization over memorization. Exercise drills ensure basic skills competency where appropriate. Short, snappy sections that begin with a framing question enhance readability and encourage assignment completion.

The 2.0 version of this text boasts substantive revisions (additions, deletions, rearrangements) of almost every chapter based on the suggestions of many Money and Banking instructors.

Some specific highlights are: Chapter 11 now contains enhanced descriptions of recent regulatory changes, including Dodd-Frank, Chapter 12 is an entirely new chapter on derivatives covering forwards, futures, options, and swaps that also including comprehensive treatment of the causes and consequences of financial crises, and Chapter 14 has updated discussions of the Federal Reserve's monetary policy tools, including paying interest on reserves, and the structure and leadership of the European Central Bank.

Recent financial turmoil has increased student interest in the financial system but simultaneously threatens to create false impressions and negative attitudes. This up-to-date text by a dynamic, young author encourages students to critique the financial system without rejecting its many positive attributes. Peruse the book online now to see for yourself if this book fits the needs of your course and students.

This textbook has been used in classes at: Augustana College, Central Michigan University, Florida State University, Lyndon State College, Princeton University, Rutgers University, University of Southern Maine, Western Oregon University., Westminster College.

About the Contributors

Robert E. Wright was born in 1969 in Rochester, New York, to two self-proclaimed factory rats.

"I recall little of my earliest days except the Great Inflation and oil embargo, which stretched the family budget past the breaking point. The recession in the early 1980s also injured my family’s material welfare and was seared into my brain. My only vivid, noneconomic memories are of the Planet of the Apes films (all five of them!) and the 1972 Olympics massacre in Munich; my very young mind conflated the two because of the aural similarity of the words gorilla and guerilla.

After taking degrees in history from Buffalo State College (B.A., 1990) and the University of Buffalo (M.A., 1994; Ph.D., 1997), I began teaching a variety of courses in business, economics, evolutionary psychology, finance, history, and sociology at Temple University, the University of Virginia, sundry liberal arts colleges, New York University’s Stern School of Business, and, since 2009, Augustana College (the one in South Dakota, not the one in Illinois), where I am additionally the director of the Thomas Willing Institute for the Study of Financial Markets, Institutions, and Regulations. I’ve also been an active researcher, editing, authoring, and coauthoring books about the development of the U.S. financial system (Origins of Commercial Banking, Hamilton Unbound, Wealth of Nations Rediscovered, The First Wall Street, Financial Founding Fathers, One Nation Under Debt), construction economics (Broken Buildings, Busted Budgets), life insurance (Mutually Beneficial), publishing (Knowledge for Generations), bailouts (Bailouts), public policy (Fubarnomics), and investments (The Wall Street Journal Guide to the 50 Economics Indicators That Really Matter). Due to my unique historical perspective on public policies and the financial system, I’ve also become something of a media maven, showing up on NPR and other talk radio stations, as well as various television programs, and getting quoted in major newspapers like the Wall Street Journal, New York Times, Chicago Tribune, and the Los Angeles Times. I publish op-eds and make regular public speaking appearances nationally and, increasingly, internationally. I am also active in the Museum of American Finance and sit on the editorial board of its magazine, Financial History.

I wrote this textbook because I strongly believe in the merits of financial literacy for all. Our financial system struggles sometimes in part because so many people remain feckless financially. My hope is that people who read this book carefully, dutifully complete the exercises, and attend class regularly will be able to follow the financial news and even critique it when necessary. I also hope they will make informed choices in their own financial lives."

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Introduction to Money and Banking

Chapter objectives.

In this chapter, you will learn about:

• Defining Money by Its Functions
• Measuring Money: Currency, M1, and M2
• The Role of Banks
• How Banks Create Money

Bring It Home

The many disguises of money: from cowries to crypto.

Here is a trivia question: In the history of the world, what item did people use for money over the broadest geographic area and for the longest period of time? The answer is not gold, silver, or any precious metal. It is the cowrie, a mollusk shell found mainly off the Maldives Islands in the Indian Ocean. Cowries served as money as early as 700 B.C. in China. By the 1500s, they were in widespread use across India and Africa. For several centuries after that, cowries were the means for exchange in markets including southern Europe, western Africa, India, and China: everything from buying lunch or a ferry ride to paying for a shipload of silk or rice. Cowries were still acceptable as a way of paying taxes in certain African nations in the early twentieth century.

What made cowries work so well as money? First, they are extremely durable—lasting a century or more. As the late economic historian Karl Polyani put it, they can be “poured, sacked, shoveled, hoarded in heaps” while remaining “clean, dainty, stainless, polished, and milk-white.” Second, parties could use cowries either by counting shells of a certain size, or—for large purchases—by measuring the weight or volume of the total shells they would exchange. Third, it was impossible to counterfeit a cowrie shell, but dishonest people could counterfeit gold or silver coins by making copies with cheaper metals. Finally, in the heyday of cowrie money, from the 1500s into the 1800s, governments, first the Portuguese, then the Dutch and English, tightly controlled collecting cowries. As a result, the supply of cowries grew quickly enough to serve the needs of commerce, but not so quickly that they were no longer scarce. Money throughout the ages has taken many different forms and continues to evolve even today with the advent of cryptocurrency. What do you think money is?

The discussion of money and banking is a central component in studying macroeconomics. At this point, you should have firmly in mind the main goals of macroeconomics from Welcome to Economics! : economic growth , low unemployment , and low inflation . We have yet to discuss money and its role in helping to achieve our macroeconomic goals.

You should also understand Keynesian and neoclassical frameworks for macroeconomic analysis and how we can embody these frameworks in the aggregate demand/aggregate supply (AD/AS) model. With the goals and frameworks for macroeconomic analysis in mind, the final step is to discuss the two main categories of macroeconomic policy: monetary policy, which focuses on money, banking and interest rates; and fiscal policy, which focuses on government spending, taxes, and borrowing. This chapter discusses what economists mean by money, and how money is closely interrelated with the banking system. Monetary Policy and Bank Regulation furthers this discussion.

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Gr. 11 Economics Lesson W6, T3 - Economic Pursuits: Money and Banking

Grade 11 Economics Lesson Week 6, Term 3 - Economic Pursuits: Money and Banking

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12.17: Assignment- Problem Set — Money and Banking

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3.1 – Money and Banking

What is money? A medium of exchange of goods and services.

Why do we need money? We need money in order to exchange goods and services with one another. This is because we aren’t self-sufficient – we can’t produce all our wants by ourselves. Thus, there is a need for exchange.

In the past, barter system (exchanging a good or service for another good or service) prevailed. This had a lot of problems such as the need for the double coincidence of wants (if the person wants a table and he has a chair to exchange, he must find a person who has a table to exchange and is also willing to buy a chair), the goods being perishable and non-durable, the indivisibility of goods, lack of portability etc.

Thus the money we use today is in the form of currency notes and coins, which are durable, uniform, divisible (can be divided into 10’s, 50’s , 100’s etc), portable and is generally accepted. These are the characteristics of what is considered ‘good money’.

The functions of money:

• Money is a medium of exchange , as explained above.
• Money is a measure of value. Money acts as a unit of account, allowing us to compare and state the worth of different goods and services.
• Money is a store of value. It holds its value for a long time, allowing us to save it for future purposes.
• Money is a means of deferred payment . Deferred payments are purchases on credit – where the consumer can pay later for the goods or service they buy.

Banks are financial institutions that act as an intermediary between borrowers and savers. It is the money we save at banks that is lent out as loans to other individuals and businesses.

Commercial banks are those banks that have many retail branches located in most cities and towns. Example: HSBC. There is also a central bank   that governs all other commercial banks in a country. Example: The Reserve Bank Of India (RBI).

Functions of a commercial bank:

• Accept deposits in the form of savings.
• Aid customers in making and receiving payments via their bank accounts.
• Give loans to businesses and private individuals.
• Buying and selling shares on customers’ behalf.
• Provide insurance (protection in the form of money against damage/theft of personal property).
• Exchange foreign currencies.
• Provide financial planning advice.

Functions of a central bank:

• It issues notes and coins of the national currency.
• It manages all payments relating to the government.
• It manages national debt. Central banks can issue and repay public debts on the government’s behalf.
• It supervises and controls all the other banks in the whole economy, even holding their deposits and transferring funds between them.
• It is the lender of ‘last resort’ to commercial banks. When other banks are having financial difficulties, the central bank can lend them money to prevent them from going bankrupt.
• It manages the country’s gold and foreign currency reserves. These reserves are used to make international payments and adjust their currency value (adjust the exchange rate).
• It operates the monetary policy in an economy.(This will be explained in a later chapter)

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• Money and Banking

What is Money?

Money is any item that everyone accepts as a medium of exchange. It is widely recognized as a means for purchasing goods and services and repayment of debts. It allows people to receive anything that they need for a livelihood.

In ancient times, people used to obtain things through the barter system. Here, two individuals or parties would exchange goods and services that the other needs. But the earlier method of bartering did not have the ease of transferability that eventually led to the invention of Money. 

For Example-   if anyone has rice but needs milk, he/she must find someone who not only has milk but also has the requisite of preparing meals. What if anyone finds a person who can offer milk but needs clothes? 

A trade cannot occur in such a situation. Due to such recurring hassles, a relatively more straightforward medium of exchange came into existence, and now it has worldwide recognition.

As per the meaning of Money in economics, it is a medium of exchange, a unit of accounting that allows people to make any transaction.

In terms of exchange, traders accept Money as a medium for buying or selling commodities, and employees consider it a means of remuneration for their labour. As a unit of accounting, it acts as a quick and easy method of calculation.

For Example- when someone inquires about the value of an item, it can be merely quoted in its monetary denomination.

What are the Properties of Money?

The concept of Money in economics is considered as a crucial element for the proper functioning of an Economy. It has become an essential means of exchange in the entire world. It has value, and people use it to obtain things that they wish to avail.

There are specific properties of Money that account for its worldwide usage. Some of these include:

Interchangeability: Money has a universal application as one can interchange it with other things.

Repeated Usage: One can use it again and again to purchase anything. It does not lose its value with time.

Transferable: Anyone can carry Money from one place to another due to its portability.

Define Banking

A Bank is a financial institution that allows people to make deposits and receive credit. In India, Banks are licensed by the Reserve Bank of India. It operates to provide financial assistance to borrowers and allow cash transactions.

Similarly, Banking is an industry that allows credit, handles deposits, and provides financial help to borrowers. More broadly, it is a network that facilitates the Money flow in the Economy. Banks also facilitate companies with an adequate amount of funds to finance their operations.

Money and Banking are the two most essential components that drive the Economy. Money allows people to make transactions, whereas Banks play a vital role in circulating the Money supply in the Market.

What are the Different Types of Banks?

Banks provide long-term credit opportunities such as credit cards, Business loans, mortgages, etc. Similar to other Businesses, the goal of any Bank is to earn Profits.

They earn profits from the difference in interest rates charged from borrowers and offered to depositors.

For instance, a Bank gains 4% Profit by charging 6% interest from its borrowers and paying 2% interest to savings account holders.

There are different types of Banks operating in the Market. They are listed out below as:

Retail Banks: These Banks offer services to the public, and they deal with the retail Market. Their services are known as general Banking as they provide facilities such as savings accounts, current accounts, short-term loans, credit cards, personal loans, etc. Most retail banks offer wealth management facilities to their customers. They also provide foreign exchange facilities to their NRI customers.

Commercial Banks: They are also known as corporate Banks, and these institutions provide specific services to the companies. Apart from its daily Banking functions, they offer cash management, trade finance, real estate, and employer services to their corporate clients.

Exchange Banks: These Banks mainly facilitate foreign trade in a country. They accept, collect, and allow discounting of bills of exchange. These Banks also deal in buying and selling of foreign currencies along with general Banking activities.

Co-operative Banks: The primary function of these banks is to provide loans at a relatively lower rate of interest to farmers. They offer both short-term and long-term loan facilities to their customers. Short-term loans include credit for purchasing fertilizers, seeds, etc. whereas long-term funds include credit offerings to farmers for purchasing lands, etc.

Central Banks: A central Bank is considered as a lender of last resort. It does not directly deal with the general public; instead, it regulates the functions of the other Banks. They are responsible for controlling inflation, rate of interest, and monetary policy, among other necessary functions in an Economy.

Why is Banking Essential?

The primary purpose of a Bank is to keep customers Money secured. People find it safe to save Money in Banks as they provide protection.

Apart from security, it allows interest on savings to their customers. Instead of keeping Money at home, people find it more convenient to save in Banks.

Banking has become an integral part, as it facilitates advancing loans to different entities. For instance, they offer loans and credit cards to individuals to inflate their purchasing power. They also provide financial advice to its borrowers to aid Business decisions.

There has been a constant evolution of Money and Banking with time. With the ever-increasing demand of customers, new regulations have been implemented in the Banking industry. The value of Money always changes with time, and Banks ensure a smooth flow of Money in the Market.

To get a better and in-depth insight into the Money and Banking project, visit Vedantu’s official website today.

Vedantu is an online learning app that helps students to understand detailed concepts with ease. Money and Banking are essential topics in the CBSE Curriculum of schools. In Class 11th and 12th, this Chapter is categorized under the Commerce stream. It is an important Chapter. In addition, it helps in laying a strong foundation for the students who want to pursue their careers in the field of commerce and Banking.

In order to understand the complex topics included with the Chapters of CBSE Class 12th Economics, students are advised to consider the introductory Chapters equally important. For instance, if you will comprehend the definition of Money at a deeper level then it will be much easier to understand the related topics like Money supply in the upcoming Chapters. 

For the students who wish to appear for the competitive exams in the future, Money and Banking is specifically important for them. 

Types of Money

Once you are familiar with the definition of the term- Money the next step involves learning the types of Money that come with it. It is an important question that is apparent in its repetition among the previous year's question papers. 

According to the Economists, Money can be categorized into four types-

Fiat Money- It consists of the type of currency that is legally issued by the government. In simpler terms, it does not involve physical commodities like gold and silver. Examples of fiat Money include- the US dollar, the euro, and the pound.

Commercial Money- It is the type of currency that is generated by commercial Banks. Commercial Banks are responsible for making Money by providing loans. It can be in any form like personal loans, mortgages, etc. In simpler terms, the amount of Money that is produced by the commercial Banks is called commercial Money. 

Fiduciary Money- Are you aware of what a cheque is? Well, it is one of the primary examples to understand fiduciary Money. A cheque is defined as a means of payment between the payer and the payee which is based on the trust between these people rather than any official involvement of the government. To put it simply, Fiduciary Money is the type of currency that involves Money based on the trust between the payer and the payee. 

Commodity Money- As the term describes, is defined as the type of Money that is based on the value of a commodity. These commodities hold an inner value of their own. It varies from commodity to commodity. Instances of Commodity Money include- Gold, silver, copper. 

FAQs on Money and Banking

1. What are Commercial Banks?

Commercial Banks are the institutions that receive deposits from the general country population and provide loans in order to earn Profits. These Banks are also known as corporate Banks. In addition to the daily Banking functions like other Banks, commercial banks are also responsible for cash management, providing Banking services to their corporate clients, trade finance, real estate, etc. Experts at Vedantu have defined different types of Banks in detail along with their important functions. In order to promote practical learning, mentioning a few real examples for each of these Banks can help you to stand out in your exam. Some of the commercial Banks that function in India are- State Bank of India(SBI) and Corporation Bank.

2. What are the disadvantages of the Barter system?

The barter system is a method in which two individuals or parties exchange the good services needed by each one of them. However, it is ancient and is no longer prevalent in the Economy. 

The major disadvantage of the Barter system is 'Double coincidence of wants.  According to this, the Barter system has a major condition. This method works only when both the individuals are willing/or in need of exchanging their goods and services. Vedantu has explained this drawback in detail with the help of an illustrative example. Visit the website for the full explanation. You can have access to it for free. 

3. How is Money helpful in solving the problems involved with the barter system?

The Evolution of Money had been primarily done to ease the process of exchange. Money is accepted as a standard medium of exchange across all nations. 

In the Barter system, there was a problem of double coincidence of wants. Money overcomes this by being the common medium of exchange for both the individuals/parties. 

It also helps in measuring the value of goods and services. Without Money, there was no certain unit to measure the price for the goods or services provided by other people. 

Since Money is legally accepted by the government, it is the official standard across the world. Before evolution, it was difficult to undertake fair decisions on these matters.

4. What are the important functions of the Central Bank?

The important functions of the central Banks get significantly covered in their definition itself. The Central Bank is known as the lender of last resort. It is the highest institution that controls and regulates the quantity of Money. It is basically responsible for the economic good of the country's population. In addition, there are a lot of policies that get framed in order to ensure a smooth flow of Money in the Economy. The Central Bank is responsible for designing this structure and the fair execution of these policies. 

5. Explain the properties of Money?

Vedantu has explained the concept of Money in detail. Experts have made sure to include all the important questions that will give you the sample of questions from this Chapter. In Economics, Money is considered the most significant and important part of the proper operation of an Economy. The properties of Money include:

Interchangeability- Money is accepted as a standard unit universally. It can be interchanged with any commodity. 

Repeated Usage- Money has a certain value that does not get lost with time. You can use it to buy other things repeatedly. 

Transferable- It's very easy to transfer. You can conveniently carry Money and take it from one place to another.

6. Difference Between Money and Banking?

Banks are organized institutions that accept deposits from depositors and advance loans to borrowers. On the other hand, Money is the medium of exchange that allows the transfer of ownership of commodities from one person to the other.

7. What is the Financial System?

A financial system allows the exchange of Money among lenders, borrowers, and investors. They deal with the allocation of savings, mobilization of funds, and facilities financial transactions.