PRODUCT MARKETS: Markets that exchange final goods and services, that is, the output that is combined

into gross domestic product. The buyers of this production---household, business, government, and foreign. The seller of this production -business sector. A substantial part of macroeconomics is devoted to explaining how and why gross domestic product exchanged through product markets rises or falls. macroeconomic markets--resource markets and financial markets, Product markets

Gross Production

Product markets take center stage in the macroeconomic analysis of the economy. provide a direct indication of the level of aggregate output, or gross domestic product. suggests how and why the level of aggregate output changes as the economy moves through the ups and downs of business cycles. light on the macroeconomic problems of inflation and unemployment. Gross Production The product markets exchange final goods and services, what is commonly specified as gross domestic product gross domestic product is the total market value of all final goods and services produced in the domestic economy over a given period. The product markets only exchange final production. They exclude raw materials or intermediate goods that are subject to further processing before resold.

Buyers and Sellers

The demand side of the product markets is commonly and conveniently categorized by the particular macroeconomic sector making the expenditure--household, business, government, and foreign.

The corresponding expenditures made by these four sectors are

consumption expenditures, investment expenditures, government purchases, and exports. Household Consumption: The household sector undertakes consumption expenditures for consumer goods. This is the vast majority of aggregate production that is used to satisfy wants and needs. The acquisition of consumer goods by the household sector is the ultimate goal of economic activity. Business Investment: The business sector makes investment expenditures on capital goods, which add to the economy's production capabilities. Investment expenditures tend to be the most volatile expenditure running through the product markets. Government Purchases: The government sector is responsible for government purchases of goods used to pursue assorted government functions such as national defense, education, and law enforcement. Foreign Exports: Foreign Imports:

Resource markets.

macroeconomic markets ,resource , financial. & Resource Markets The services of the four factors of production--labor, capital, land, and entrepreneurship--are traded through resource markets. Resource markets, also termed factor markets, are used by the business sector to acquire the factor services needed for production Payment for these factor services then generate income received by the household sector, which owns the resources. Note only factor services are exchanged through resource markets, not the actual factors. Financial Markets: The commodities exchanged through financial markets are legal claims. Legal claims, or financial instruments, represent ownership of physical assets, capital, as well as other goods. Because the exchange of legal claims involves the counter flow of income, those seeking to save income buy legal claims and those wanting to borrow income sell

The Circular Flow

The product markets at the top of the flow direct production from the business sector to the household sector in exchange for payment flowing in the opposite direction. The resource markets at the bottom of the flow direct factor services from the household sector to the business sector in exchange for payment flowing in the opposite direction. The circular flow indicates that the income used by the household sector to purchase goods through the product markets is obtained by selling factor services through the resource markets. It also indicates that the revenue used by the business sector to pay for factor services obtained through the resource markets is generated by selling goods through the product markets.

The Circular Flow

Household Income Product Markets

Income Goods products

Resource Markets

Factor Services Land , Labor Capital

Entrepreneurship Business Markets

Revenue

Aggregate Equilibrium

Demand in the aggregate product market reflects the expenditures made by buyers in the individual markets. And supply in the aggregate product market reflects the total production sold in the individual markets. Equilibrium in the aggregate product market is an essential aspect of macroeconomic analysis. This exists if total expenditures on gross domestic product is equal to the total amount of gross domestic product available. However, this does not mean every individual product market is in equilibrium. One might have a bit of a shortage and another a bit of a surplus. As long as the shortages and surpluses balance out, meaning aggregate production is equal to aggregate expenditures, then the aggregate product market is in equilibrium

A commercial bank
A commercial bank (or business bank) is a type of financial institution and intermediary. It is a bank that provides transactional , savings, and money market accounts and that accepts time deposits

The role of commercial banks

processing of payments by way of telegraphic transfer, internet banking, or other means issuing bank drafts and cheques accepting money on term deposits lending money by overdraft, installment loan, or other means providing documentary and standby letter of credit, guarantees, performance bonds securities underwriting commitments and other forms of off balance sheet exposures safekeeping of documents and other items in safe deposit boxes

commercial banks
distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a financial supermarket cash management and treasury banking and private equity financing traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and creditrelated securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities.

Types of loans granted by commercial banks

Unsecured loan are monetary loans that are not secured against the borrower's assets . These may be available from financial institutions under many different guises or marketing packages: Bank overdraft :---- An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the POSITIVE balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.

Types of loans granted by commercial banks

Corporate bonds credit card debt credit facilities or lines of credit personal loans What makes a bank limited liability company A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date. (The term "commercial paper" is sometimes used for instruments with a shorter maturity.)

Corporate bonds

often listed on major exchanges (bonds there are called "listed" bonds) However, despite being listed on exchanges, the vast majority of trading volume in corporate bonds in most developed markets takes place in decentralized, dealer-based, over-thecounter markets. Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date. Other bonds, known as convertible bonds, allow investors to convert the bond into equity

commercial letter of credit

A standard, commercial letter of credit (LC[1]) is a document issued mostly by a financial Institution used primarily in trade finance , which usually provides an irrevocable payment undertaking. The letter of credit can also be payment for a transaction, meaning that redeeming the letter of credit pays an exporter. Letters of credit are used primarily in international trade international trade .transactions of significant value, for deals between a supplier in one country and a customer in another

letter of credit (LC)

They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties ---- beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, Travelers cheques, commercial invoice, bill of lading , and documents proving the shipment was insured

commercial letter of credit (LC)

After a contract is concluded between buyer and seller, buyer's bank supplies a letter of credit to seller. Seller consigns the goods to a carrier in exchange for a bill of lading. Seller provides bill of lading to bank in exchange for payment. Seller's bank exchanges bill of lading for payment from buyer's bank. Buyer's bank exchanges bill of lading for payment from the buyer. Buyer provides bill of lading to carrier and takes delivery of goods.

(LC)

They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment was insured against loss or damage in transit.

Financial Documents

To receive payment, an exporter or shipper must present the documents required by the letter of credit. Typically, the payee presents a document proving the goods were sent instead of showing the actual goods. The Original Bill of Lading (OBL) is normally the document accepted by banks as proof that goods have been shipped. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin or place.

Financial Documents

Financial Documents Bill of Exchange, ----Co-accepted Draft Commercial Documents Invoice, Packing list ----Shipping Documents Transport Document, Insurance Certificate, Commercial, Official or Legal Documents Official Documents License, Embassy legalization, Origin Certificate, Inspection Certificate, Transport Documents Bill of Lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, CMC Other than Mate Receipt, Forwarder Cargo Receipt, Deliver Challan...etc Insurance documents Insurance policy, or Certificate but not a cover note.

Call Money/Notice Money

All banks Institutions can participate Funds Are lent for 1 day-14 days From Sat-Mon Borrowers lenders current account in the RBI Timely quick Debit,credit operations Interest rate highly Volatile(2-3%70%) High risk Temporary parking place for funds on short term basis

Commercial Bills
Used for credit extension by banks to customers Banks can rediscount the bills & ready money Bill Should arise out of trade /commercial transactions(RBI) Maturity date should not fall within 90days from the date of rediscounting Less volatility in interest rate in bill rediscounting market then in the call money

Short term Govt. Security introduced in 1986 It is issued at discount by RBI& F/V is paid to holder on maturity Every fortnight RBI invite bids for 182 days treasury bill Successful bidders collect letter of acceptance &deposit amt with apex bank within 24 hrs All banks, ,institutions, local bodies, corporations. individuals, can submit bids Eligible for SLR requirement for banks Handy instrument for banks for conversion from cash to treasury & vise versa

Treasury Bills 182 days

Commercial Papers
Short term negotiable instrument issued by companies redeemable at par to the holders on maturity Scheme introduced in 1990 by RBI Issued by Companies in the form Promissory note Period of C.P. 15-365 days Maxi amt for which cp can be released is limited to 100% of working capital sanctioned by companies bank A C.P issue of minimum size Rs 25lakh Good investment for short term cash surplus

Underwriting services
It is a financial service covering the risk of non subscription to the new issues in the capital market I t is a contract between the issuer of securities and the underwriter to the effect that the latter assures the subscription from the public to the extent of the amount agreed upon .

Financial system
Organized Markets RBI Banks Money Market/stock Capital Market Bullion Market Unorganized Market Money Lenders Brokers ,Traders, Landlords

Financial System
Financial System A trading in liquidity Cash,(RBI) Credit (Banks) lending and borrowings, claims on money(Financial Markets)

Segments of Money Market

RBI as a lender of Last Resort,Banks, LIC,UTI, Financial Markets,Mobilization of savings and promotion of investment . Sectors Household sector/Foreign Sector/Business Sector/Govt Sector Markets Primary Sector, Secondary, Tertiary Market