Money

Any good that is accepted in

the transfer of goods and
services

Any item that is accepted as

payment for goods and
services and repayment of
debts
FUNCTIONS OF MONEY
 Functions

Medium of exchange

Unit of account / Measure of value

Store of value

Standard of deferred payment

Medium of exchange

All parties in an economy will

accept money

Eliminates the need for a

double coincidence of wants

Faster and convenient in

commerce
Unit of account/Measure of value
A standard numerical monetary unit of
measurement of the value of goods,
services, and other transactions

A unit of account is a prerequisite for the

commercial agreements that involve debt

A method for comparing the values of

dissimilar objects
 Store of value

Money must be able to be saved, stored,

and retrieved

The value of the money must also remain

stable over time

Inflation reduces the value of money and

diminishes the ability of the money to
function as a store of value
Standard of deferred payment
An accepted way to settle a debt –
a unit in which debts are
denominated, and the status of
money as legal tender

It may function for the discharge of

debts
Negotiable instrument
A contract, which promises the payment
of money without condition, which may
be paid either on demand or at a future
date
A specialized type of contract for the
payment of money, unconditional and
transferable

Promissory note, bill of exchange or

cheque
Characteristics of Negotiable instrument
• The ownership is transferable by delivery if it is bearer
Free transferable • Otherwise by endorsement and delivery

• Holder is entitled to receive specific amount mentioned

Entitlement in instrument and any applicable interest

Unconditional

Title free from • The holder is free from all kinds of defects in the act of
defects transferors.

Recovery • The holder can sue defaulting party

 Bill of exchange
A document in writing containing an unconditional
order, signed by the maker, directing a certain person
for paying a certain amount to the order of a certain
person or to the bearer

A bill of exchange may be endorsed by the payee in

favour of a third party, who may in turn endorse it to a
fourth, and so on

The "holder may claim the amount of the bill against

the drawee and all previous endorsers
 Three parties-Bill of exchange
• The person who draws the
The drawer bill - Baseer

The • He accepts the bill to pay-

drawee Abdullah

• The person receiving the

The payee payment
 Promissory note

An unconditional promise in writing made by one

person to another, signed by the maker, to pay on
demand to the payee, at fixed or determinable
future time, certain in money, to order or to bearer

According to section 4 of Negotiable Instruments

Act, 1881, "a Promissory Note is a writing (not
being a bank note or currency note), containing an
unconditional undertaking, signed by the maker to
pay a certain sum of money only to or to the order
of a certain person or the bearer of the
instrument"
 Discounting
Cashing the bill for less than the its face value before
maturity date

Amount of cash depends on number of days to

maturity, rate and risk

Holder may sell bill to a bank

The bill will be endorsed by the drawer with a signed

and dated order to pay the bank

The bank will become the holder and the owner of

the bill
Endorsement
Writing of a person
name on the face or
on the back of
instrument and
putting signature for
the purpose of
negotiation
 Reserves

The amount of cash that banks must

have, in their vaults

Keep a certain amount of deposits

on hand to cover possible
withdrawals

This amount is called the reserve

that banks must keep in the reserve
 CRR

Amount of reserves that must be held by a

commercial bank

SBP Sets the minimum Percentage of the amount

of deposit, liabilities the commercial bank owes to its
customers

Consist of cash owned by the bank and stored

physically in the bank vault plus the amount of the
commercial bank's balance in that bank's account with
the central bank
 SLR
Every scheduled bank is required to maintain with
SBP balance the amount of which shall not at the
close of business or any day be less than such
percentage of Time & Demand Liabilities as
determined by SBP and Statutory Liquidity
Requirement (SLR)

Both CRR & SLR are calculated on the basis of total

Time and Demand Liabilities, without making any
distinction on the basis of tenor of liabilities
 IMF

An organization of 189 countries created in 1945

Governed by and accountable to the 189 countries

Conceived at a UN conference in Bretton Woods, New

Hampshire, United States, in July 1944, 44 countries at
that conference

Countries contribute funds to a pool through a quota

system from which countries experiencing BOP problems
can borrow money
 Purpose
To foster global monetary cooperation
Secure financial stability
Facilitate international trade,
Promote high employment
Sustainable economic growth,
Reduce poverty around the world
 Responsibilities
To ensure the stability of the international monetary system
—the system of exchange rates and international payments
that enables countries to transact with each other

Deals in all macroeconomic and financial sector issues that

bear on global stability

Management of BOP difficulties and international financial

crises

Gathering of statistics and analysis

 Responsibilities
Surveillance of its members' economies and the demand for
particular policies

Works to improve the economies of its member countries

To promote international monetary co-operation, international

trade, high employment, exchange-rate stability, and making
resources available to member countries in financial difficulty

Providing policy, advice and financing the members, by working

with developing nations to help them achieve macroeconomic
stability
To provide short-term capital to aid the BOP

To provide capital investments for economic

growth and infrastructure projects

IMF now manages economic policy rather

than just exchange rates

Negotiates conditions on lending and loans

 World Bank
The World Bank is a component of the World Bank Group

An international financial institution that provides loans to countries for capital

projects

It comprises two institutions:

IBRD and IDA)

The World Bank's stated goal is the reduction of poverty which its Articles of

Agreement define as commitments to the promotion of foreign
investment and international trade and to the facilitation of capital investment
 Smurfing

Cash is broken into smaller

deposits of money, used to avoid
suspicion of money laundering

Use smaller amounts of cash to

purchase bearer instruments, such
as DSC, and then deposit those,
again in small amounts
Bulk cash smuggling

Physically smuggling cash to

another jurisdiction and
depositing it in a financial
institution, such as
an offshore bank, with
greater bank secrecy or less
rigorous money laundering
enforcement
Cash-intensive businesses
A business receives revenue as cash, uses its accounts to
deposit criminally derived cash

Such enterprises operate openly and generate cash

revenue from legitimate business in addition to the illicit
cash

The business will claim all cash received as legitimate

earnings

Suits service businesses, difficult to detect discrepancies

between revenues and costs
Trade-based laundering

This involves under- or over invoicing to

disguise the movement of money

Art market is an ideal vehicle for money

laundering due to several unique aspects
of art such as the subjective value of
artworks as well as the secrecy of auction
houses about the identity of the buyer and
seller
Shell companies and trusts

Trusts and shell companies

disguise the true owners of
money

Trusts and corporate vehicles,

depending on the jurisdiction,
need not disclose their true
owner
 Round-tripping
Money is deposited in
a controlled offshore company, in a tax
haven where minimal records are kept, and
then shipped back as a foreign direct
investment, exempt from taxation

Transfer money to a law firm as fees, then

to cancel the retainer and, when the
money is remitted, represent the sums
received from the lawyers as a legacy
under a will or proceeds of litigation
 Bank capture
Criminals buy a
controlling interest in a
bank, preferably in a
jurisdiction with weak
money laundering
controls, and then move
money through the bank
without scrutiny
 Casinos

An individual walks into a casino

and buys chips with illicit cash and
pay for a short time

When the person cashes in the

chips, take payment in a check, or
get a receipt to claim the proceeds
as gambling winnings
 Other gambling

Money is spent on gambling

Bet on every possible outcome of some event that has

many possible outcomes, and the bettor will have one
or more winning bets that can be shown as the source
of money

The losing bets will remain hidden

 Real estate

Someone purchases real estate with illegal

proceeds and then sells the property

To outsiders, the proceeds from the sale look like

legitimate income

The price of the property is manipulated: the seller

agrees to a low value contract of property, and
receives criminal proceeds to make up the
difference
 Black salaries
A company may have unregistered
employees without written
contracts and pay them cash
salaries

Dirty money might be used to pay

them
Tax amnesties

Legalize
unreported
assets and cash
The Financial Action Task Force FATF on
Money Laundering , an intergovernmental
body to combat money laundering, stated

"Overall, it is absolutely impossible to

produce a reliable estimate of the amount
of money laundered and therefore the
FATF does not publish any figures in this
regard."