MONEY AND BANKING

MONEY
THE FUNCTIONS OF MONEY
CHARACTERISTICS OF GOOD MONEY
THE CREATION OF DEPOSIT MONEY
BANKING

I have money,
what do I do with
it?

MONEY
Money is a good that acts as a medium of exchange in
transactions.
Classically it is said that money acts as a unit of
account, a store of value, and a medium of exchange.
The demand is unlimited but the supply is limited = to
avoid inflation
Anything that is generally accepted in exchange for
goods and services
Any commodity that acquires a high degree of
acceptability throughout an economy becomes money

TYPES OF MONEY
COMMODITY MONEY : Commodity money is money whose value comes from a commodity out of
which it is made. It is objects that have value in themselves as well as for use as money
used for other purposes beside as medium of exchange
intrinsic value
i.e; Cattle, silk, gold and silver

FIAT MONEY: Fiat money is money that has value only because of government regulation or law.
without intrinsic value
used for transactions e.g paper money

CONVERTIBLE PAPER MONEY: Convertible paper money is money that is convertible into gold
and silver. Gold and Silver certificates are convertible paper money as they can be fully convertible into
gold and silver
Money that is convertible into gold and silver
Gold and silver certificates are convertible paper money

INCONVERTIBLE MONEY: Inconvertible money is money that cannot be converted into gold and
silver. Notes and coins are inconvertible money. They are incovertible and are declared by the
government money
Money cannot be converted into gold and silver
i.e: notes and coins
Currencies used in daily transaction

ELECTRONIC MONEY : Electronic money is a digital equivalent of cash, stored on an electronic

device or remotely at a server
Money stored electronically in certain cash
i.e: ATM card, Credit Card

THE FUNCTIONS OF MONEY

MEDIUM OF EXCHANGE
Anything that facilitates trade by being generally accepted by all parties
in payment for goods or services
MEASURE OF VALUE
A common unit for measuring the value of each good or service
STORE OF VALUE
Anything that retains its purchasing power over time. The role of money
as a stock is best reflected by moneys role as a store of value
DEFERRED PAYMENT
As medium for the purchasing goods on credit basis. Credit card

CHARACTERISTICS OF GOOD MONEY

QUALITY

RATIONALE

GOOD EXAMPLES

BAD EXAMPLES

ACCEPTABLE

Accept by everyone as a
spending power

RM5 notes

Rock=value of RM5

DURABLE

Should not wear out quickly

Coins

Strawberries;
seafood

PORTABLE

Should be easy to carry,

even relatively large sums

Diamonds; paper
money;

Potatoes

DIVISIBLE

Market exchange is easier

if denominations support a
range of possible prices

Paper money and

coins

Diamonds

SCARCITY

Perform as unit of quality

Paper money
produce by Bank
Negara

Diamonds, DVDs

LOW
OPPORTUNITY
COST

The fewer resources tied up

in creating money, the more
available for other uses

Iron coins, paper

money

Gold, Silver
diamonds

STABLE VALUE

People are more willing to

accept and hold money if
they believe it will keep its
value over time

Anything whose
supply can be
controlled by issuing
authority, such as
paper money

Farm crops; gold

BANKING
Banks' activities can be divided into RETAIL BANKING, dealing
directly with individuals and small businesses; business banking,
providing services to mid-market business; corporate banking,
directed at large business entities; and investment banking, relating
to activities on the FINANCIAL MARKETS.
Most banks are profit-making, private enterprises. However,
some are owned by government, or are non-profits.
CENTRAL BANKS are non-commercial bodies or government
agencies often charged with controlling interest rates and money
supply across the whole economy.
They generally provide liquidity to the banking system and act
as Lender of last resort in event of a crisis.

BANKS IN THE ECONOMIC

Banks generate their profits through the interest
charged from the borrowers
The profits are from the differential between the
level of interest it pays for deposits and other
sources of funds, and the level of interest it charges
in its lending activities
A bank raises funds by attracting deposits,
borrowing money in the inter-bank market, or
issuing financial instruments in the money market
or a capital market.
Banks have influenced economies and politics for
centuries

SERVICES TYPICALLY OFFERED BY RETAIL/COMMERCIAL BANKS

Taking deposits from their customers and issuing currencies and savings accounts to
individuals and businesses
Extending loans to individuals and businesses
Cashing cheques
Facilitating money transactions such as wire transfers and cashier's checks
Issuing credit cards, ATM cards, and debit cards
Storing valuables, particularly in a safe deposit box
Cashing and distributing bank rolls
Consumer & commercial financial advisory services
Pension & retirement planning

FINANCIAL TRANSACTIONS
ATM is a computerized telecommunications device that provides a financial
institution's customers a method of financial transactions in a public space without
the need for a human clerk or bank teller
Mail is part of the postal system which itself is a system wherein written documents
typically enclosed in envelopes, and also small packages containing other matter, are
delivered to destinations around the world
Telephone banking is a service provided by a financial institution which allows its
customers to perform transactions over the telephone
Online banking is a term used for performing transactions, payments etc. over the
Internet through a bank, credit union or building society's security

CENTRAL BANK IN MALAYSIA

Bank Negara Malaysia is the central bank for Malaysia. It was established on 26
January 1959, under the Central Bank of Malaya Ordinance, 1958 (Revised 1994) ,
with the following objectives:

To issue currency and keep reserves safeguarding the value of the currency;

To act as a banker and financial adviser to the Government;

To promote monetary stability and a sound financial structure;

To promote the reliable, efficient and smooth operation of national payment and
settlement systems and to ensure that the national payment and settlement
systems policy is directed to the advantage of Malaysia; and

To influence the credit situation to the advantage of the country.

Commercial Banks
No.

Name

ABN AMRO Bank Berhad

Affin Bank Berhad

Alliance Bank Malaysia Berhad

AmBank (M) Berhad

Bangkok Bank Berhad

Bank of America Malaysia Berhad

Bank of China (Malaysia) Berhad

Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad

CIMB Bank Berhad

10

Citibank Berhad

11

Deutsche Bank (Malaysia) Berhad

12

EON Bank Berhad

13

Hong Leong Bank Berhad

14

HSBC Bank Malaysia Berhad

15

J.P. Morgan Chase Bank Berhad

16

Malayan Banking Berhad

17

OCBC Bank (Malaysia) Berhad

18

Public Bank Berhad

19

RHB Bank Berhad

20

Standard Chartered Bank Malaysia Berhad

21

The Bank of Nova Scotia Berhad

22

United Overseas Bank (Malaysia) Berhad.

Islamic Banks

No.

Name

Affin Islamic Bank Berhad

Al Rajhi Banking & Investment Corporation (Malaysia) Berhad

AmIslamic Bank Berhad

Asian Finance Bank Berhad

Bank Islam Malaysia Berhad

Bank Muamalat Malaysia Berhad

CIMB Islamic Bank Berhad

EONCAP Islamic Bank Berhad

Hong Leong Islamic Bank Berhad

10

Kuwait Finance House (Malaysia) Berhad

11

RHB Islamic Bank Berhad

Investment Banks
No.

Name

Affin Investment Bank Berhad

Alliance Investment Bank Berhad

AmInvestment Bank Berhad

Aseambankers Malaysia Berhad

CIMB Investment Bank Berhad

Hwang-DBS Investment Bank Berhad

KAF Investment Bank Berhad

Kenanga Investment Bank Berhad

MIDF Amanah Investment Bank Berhad

10

MIMB Investment Bank Berhad

11

OSK Investment Bank Berhad

12

Public Investment Bank Berhad

13

RHB Investment Bank Berhad

14

Southern Investment Bank Berhad

Other Financial Institutions

No.

Name

ERF Sdn. Bhd.

Pengurusan Danaharta Nasional Berhad

Money brokers

No.

Name

Affin Moneybrokers Sdn Bhd

Amanah Butler Malaysia Sdn Bhd

First TAZ Tradition Sdn. Bhd.

Forex Enterprise Sdn Bhd

Fulton Prebon (Malaysia) Sdn Bhd

Harlow's & MGI Sdn. Bhd.

KAF-Astley & Pearce Sdn Bhd