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Money & Banking

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Goods can be measured with money because of this transferable value. Cntingent functions include distribution of national income, mximization of satisfaction and a basis of credit system. Mney helps in distribution of national products through the system of salaries and wages, iterest and profit. Hnce, mney facilitates the division of national income between individuals in a country. Mney also allows producers and consumers to maximize their benefits. Aproducer maximizes profit by equating the marginal productivity of a factor unit to its price. Smilarly, aconsumer maximizes his satisfaction by equating of each commodity with its respective marginal utility.

Cedit has a vital role in the modern economic system and money constitutes the base of credit. Pople deposit money in form of saving in banks; ad with these savings, bnks create credit in the market (Funke, 2001). Jhn Maynard Keynes, arenowned British economist, hd framed theories and ideas that have been able to fundamentally affect modern macroeconomics. H is considered amongst founders of modern macroeconomics as well as the most influential economist of 20th century. Hs ideas are known as economics.

Jhn Maynard Keynes in his book, “he general Theory of Employment, Iterest and Money”, hd stated three reasons for liquidation of money. Tey are precautionary motive, seculative motive and transaction motive. I the context of precautionary motive, i is the need to hold cash as a safety margin, wich acts as a financial reserve. Te speculative motive is the need to hold cash in order to take advantage of rise in bargain purchases, atractive rates of interest and favourable exchange rate fluctuations. Tansaction motive is the need to cash to satisfy normal disbursement and collection activities, wich are associated with ongoing operations of an organization.

Csh inflows are generated from sales collection, sle of assets and any kind of new financing. Csh outflows are payment of wages and salaries, tade debts, txes and dividends (Serletis, 2007). Nbel Laureate Robert Mundell (1963) had proposed the idea that demand for money depends on exchange rate, iterest rate and income rate. H asserted that “The demand for money could depend on the exchange rate in addition to income and the rate, ”(Mundell, 1963, p The exchange rate is volatile and in turn gives rise...

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