Free research paper sample on Banking:
In earlier times people only accepted bank notes as money because they were convertible into gold. Nowadays everything have changed, money has become a commodity and its always accepted as that if it possesses some properties such as durability, portability, divisibility and if it is limited in supply.
Money Supply consists on bank deposits, bank notes and coins.
Bank deposits can be converted into cash because of two reasons: on demand or just after some period of notice. These bank deposits are created when notes and coin are paid into a bank and when a bank makes a loan.
Banks assets are mostly financial assets. The reason I say mostly and not all, is because banks possess valuable real assets such as computers, etc.. These financial assets are a form of claim against individuals or firms.
Banks Liabilities consists of the deposits the bank has. In this case these deposits are claims against the bank.
There are two main types of bank deposits: Current accounts, that is when a person can withdraw cash on demand and can make payments by cheque, in this type of deposit interest is not usually paid on money. The other type is time deposits, in this case money earns interest but people can’t withdraw cash on demand for a period of time given by the bank.
The Bank of England is the most important bank in the UK, it is the government’s bank, the bankers bank, it is responsible for managing the National Debt and is responsible for carrying out the government’s monetary policy. If there is a shortage of cash in the banking system the Bank of England will come to the aid of other banks.
The banks have two main objects profitability and liquidity. Liquidity is the speed and time that takes to turn an asset to cash. Profitability refers to the ability that money has make profits.
The price of a loan is the rate of interest people have to pay for it. So the enthusiasm of people to borrow from the bank is limited to changes in this rate.
Fiduciary Money is the money that the bank does not have but really it will earn it in the future because of interests.
Monetary Supply is the control of changes in the rate of interest and in the money supply.
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