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Assignment # 1 Central Banking

Submitted Date: 19.08.2018

Q # 1 what are Financial Institutions? Explain different kinds of FI.

Q #2 what is barter system? Discuss the problems of barter economy. Explain the evaluation of
money, and how money removes the problems of barter system.

Q # 3 what is paper money? Describe its different forms? Also discuss the advantage and
disadvantage of paper money?

Q # 4 Describe key features of financial reforms instituted after the 2007–2010 global financial
crisis. (Ch# 13)

Q # 5 CASE STUDY: (Ch# 13)

The Growing Challenge of International Pressure on Domestic Economic Activity and

Domestic Inflation

In the past decade, through the intensification of globalization, many events seem to have had a
great impact on economic activity and inflation beyond their borders. In the early part of the first
decade of the twenty-first century, the burst of the dot-com bubble and terrorist attacks in the
United States helped slow down global demand and global economic activity for some time.
Meanwhile, the accession of China into the WTO in 2001 and the entry of many low-cost
emerging Asian economies into the global trading system might have also contributed to a
slowdown in global inflation through the floods of their exports.5 In response to low inflation,
many central banks, including the Federal Reserve, cut their interest rates during this period. In
the middle of that same decade, as China and other emerging economies grew rapidly, they
started to demand more natural resources. Speculation that the demand for energy from China
and other emerging economies would keep going up helped push the price of crude oil from
around USD 30 per barrel in 2000 to a peak of more than USD 140 in July 2008. The fear of a
disinflation period that had existed earlier in the decade started to dissipate. To counter this
pickup in inflation, by 2007 many central banks, including the Federal Reserve, had started to
raise their interest rates, only to find that as Lehman Brothers collapsed the following year, they
had to cut interest rates to near 0 percent to counter deflation. While oil prices fluctuated wildly
between USD 35 and USD 82 per barrel in 2009, by 2011 they had again risen above USD 100
per barrel on concerns over the political uprising in Egypt. Although this later spike in oil prices
did not raise many inflation concerns in the advanced economies that were still reeling from the
financial crisis, it did raise concerns in many emerging economies, which were booming from
capital inflows. In 2011, many emerging-market economy central banks in Asia started to raise
their interest rates to prompt inflationary pressures that were building from oil prices as well as
capital flows. Going forward, it is easy to see that as countries integrate more and more into the
global economy, their central banks will have to contend more and more with the ability of
external factors to affect domestic activities and domestic inflation.