April 1st 2020 Prepared by Yohana Abdul Hamid

Money & Banking Part 1 ECO 211 DBS 3 & DIA 4&5

Assalamualaikum & Hi everyone!

Let’s begin our class with AlFatihah. May this doa goes to all our Muslim counterparts all around the
world that have been afflicted by Covid19. May Allah SWT ease our burden and journey.

Today we are studying Topic 4 : MONEY AND BANKING. What is Money? Money is generally
defined as anything that is accepted by the society. Money comes in various forms or types.
Examples in the form of plastic money (such as credit and debit cards), fiat money ( such as notes
and coins) and commodity money (such as sea shells, beads and spices)

What are the attributes of money? Some of the attributes are durability (long-lasting),
acceptability, portability (easy to carry), divisibility., uniformity and limited in supply. Refer to your
Textbook for further details.

What are the functions of money?

1. Acts as a medium of exchange – this is to facilitate transactions. Otherwise we have to use

the barter system. For examples, Humyra purchases a set of McD Breakfast for RM5.99. Syaf
buys a novel from MPH via online banking for RM23.90. Thus money allows all transactions
to take place. Last example, Hakim purchased a bus ticket to go back home to his hometown
the moment the Prime Minister announced a ‘Lockdown’ on March 18th. Thus Hakim will pay
Puan Yohana online via M2U for the textbook he purchased. These are all examples of
money acts as a medium of exchange. Understood?

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 2. Acts as a store of value – money must hold its value overtime. How? With money you can
purchase houses, land, stocks, works of arts and others so that the values will appreciate
overtime. If you keep money, the value will depreciate with inflation (inflation means rising
prices of goods and services). Examples – Syazwan purchases RM200,000 ASB (Amanah
Saham) and he sells ASB when the dividends appreciate to generate profits. On the other
hand, Elmi buys a PRIMA house for RM 250,000 and he plans to sell the house after five
years to earn profits. Liyana is a modern lady-farmer and she purchases 10 acres of land in
FELDA Keratong with 100 cattles. If Liyana keeps money in hand, the value will depreciate
overtime and that is why she buys land and cattles as the value appreciates in future. These
are examples of money that can be kept as a store of value. By the way, if Idham were to
buy a Bentley, does money act as store of value? Compared to if Idham were to buy a
PROTON Saga? Think before you answer, Idham!
3. Acts as a unit of account – to provide a common measure of value of goods and services
being exchanged. Examples Nuqman purchases a bungalow in Bukit Kiara for RM4.5 million.
His bungalow is equipped with medium-size swimming pool and a mini-theater. On the
other hand, Siti can only afford a PPR house at RM 42,000 for a size of less than 600 square
foot. Thus Nuqman’s house is more expensive than Siti’s. Another example, Erdyna
purchases an original Longchamp Beg in Hawaii for RM 2000. Whilst, her partner Afiq can
only afford an imitation beg bought at Petaling Street for less than RM 100. This means that
Afiq’s imitation bag is cheaper than Erdyna’s. So you can use money to compare the value of
goods and services. During Covid19 outbreak, the price of a mask increased from 80 cents
per piece to RM1.50 due to high demand. This is another example to show that money acts
as a unit of account! Can you expect other prices of goods to increase or decrease during
Covid19 outbreak? Syakira and Hafiz, kindly answer this question ok.
4. Acts as a standard of deferred payment – this means that money is used for future
transactions. For an example, Yassin purchases an X70 PROTON Executive for RM124,000
with Proton Edar. The purchase is financed by Hong Leong Islamic. Yassin will pay an
installment of RM1,200 monthly for nine years. Puteri Natasya buys a 64-inch Plasma TV at
AEON on hire purchase term. Last example, due to the recent ‘lockdown’, Isyraq has to stay
home and he has been cooking for the family. He decides to buy a multi-function cooker
from WOW Shop using his credit card. Think of other simple examples. Good Luck!

Next once you have understood the functions of money, it is important to know HOW TO MEASURE
THE MONEY SUPPLY. However, in doing this, you have to understand the functions of Bank Negara
Malaysia (BNM) as a Central Bank and the functions of commercial banks. Refer to your Textbook.
The following information is just to refresh or summarize your understanding.

The Central Bank of Malaysia is Bank Negara Malaysia (BNM). BNM is owned and controlled by
Malaysian government. It is a non- profit institution. With the recent Covid19 outbreak, BNM has
announced several moves to ensure the economy is recovering at a faster rate.

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Exercise 1 – Give three (3) initiatives given by BNM under Bantuan Prihatin Nasional to assist the
B40 and M40. Who are the B40 and M40?

Functions of BNM (Central Bank) :

On the other hand, commercial banks are privately owned, profit-making institutions that provide
commercial services. The functions of commercial bank are:
• accepting deposits (saving deposit, demand deposit and fixed deposit),
• giving loan to customers and
• other services (transaction of foreign exchange, issuing bank draft and traveler’s
cheque, purchase or sale of stock exchange securities, etc.)

Exercise 2 - Refer to your textbook and other internet sources for details on the functions of
commercial banks. Explain in detail four (4) functions of commercial banks.

Examples of commercial banks are Malayan Banking Berhad, Hong Leong Bank , Public Bank and
MBSB Bank. In addition, Citibank, United Overseas Bank, Hong Kong Shanghai Bank, Standard
Chartered Bank and Ar Rahji Bank are NOT local commercial banks. They are owned by foreigners.

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Take note that Agro Bank, Bank Rakyat , Bank Simpanan Nasional (BSN) and Bank Islam Malaysia
Berhad (BIMB) are not commercial banks as they fall under different category which is non-bank
financial insitutions or non-bank financial intermediaries. Refer to the diagram below.

Exercise 3 – Refer to internet sources on the functions of finance companies, merchant banks ,
investment banks, EPF or KWSP (Employee Provident Fund) and Lembaga Tabung Haji.

Work in your existing groupings & complete all three exercises above. These exercises count for your
quiz/assignment marks. Compile all written work in a single file/document. Your group written work
shall be typed Arial or Calibri Font 12. You will submit later via email to yohana@kpbkl.edu.my.

Kindly wait for further instructions on the submission of group written work.

See you next time with Money & Banking Part 2.

Wassalam & stay safe by staying at home.