1. What are the main functions of money?

Medium of exchange
means that it can be used to make payment for all transactions.
E.g payment of goods and services
Measure of value
Means that money works as a common denominations in which value of all goods and service are
expressed
Standard of defered paymemt
It encourage lending transactions and helps im credit creation
Store of value
It means money can be stored and used to transfer purchasing power from present to future.
Liquidity
Money can be termed a most liquid asset kept in form of promissory notes,Dr,Cr
2. 2. Explain how you believe economic activity would be affected if we did not
have banking institutions?
The banking sector is an industry and a section of the economy devoted to
the holding of financial assets for others and investing those financial assets
as a leveraged way to create more wealth. The sector also includes the
regulation of banking activities by government agencies, insurance,
mortgages, investor services, and credit cards.
3. What are Monetary standards? Discuss the following Monetary Standards,
A monetary standard is a set of institutions and rules governing the supply of
money in an economy. These rules and institutions collectively constrain the
production of money. Through its constraints on money creation, the
standard indirectly acts on prices. A monetary standard may also affect the
rate of growth of real economic output, but that depends on expectations.
The gold standard is a monetary system where a country's currency or paper
money has a value directly linked to gold. With the gold standard, countries
agreed to convert paper money into a fixed amount of gold. A country that
uses the gold standard sets a fixed price for gold and buys and sells gold at
that price. That fixed price is used to determine the value of the currency.
Monometallism refers to the monetary system in which the monetary unit is
made up or convertible to only one metal. Under monometallic standard, only
one metal is used as standard money whose market value is fixed in terms of a
given quantity and quality of the metal.
A bimetallic standard, or bimetallism, is a monetary system in which a
government recognizes coins composed of both gold or silver as legal tender.
The bimetallic standard backs a unit of currency to a fixed ratio of gold and/or
silver.
Paper standard refers to a monetary standard in which inconvertible paper
money circulates as unlimited legal tender. Under paper money standard,
although the standard money is made of paper, both currency and coins serve as
standard money for purpose of payment.
1. The Fixed Fiduciary System
Under this system, a country can issue a certain quantity of notes without
any reserve, (i.e., without gold or silver backing). The upper limit to this
quantity is called fiduciary limits beyond which there has to be a hundred
percent metallic reserve.
2. The Maximum Limit System
Under the system the State fixed an upper limit to note-issue without any
reserve. But any issue of notes beyond the limit was possible only after
obtaining necessary legal sanction, i.e., permission from the legislature.

4. What is meant by the circular flow of Money? Explain the significance of

circular flow of money in an economy
The circular flow model demonstrates how money moves from producers to households and
back again in an endless loop.
In an economy, money moves from producers to workers as wages and then back from
workers to producers as workers spend money on products and services.
The models can be made more complex to include additions to the money supply, like exports,
and leakages from the money supply, like imports.
When all of these factors are totaled, the result is a nation's gross domestic product (GDP) or
the national income
The basic purpose of the circular flow model is to understand how money
moves within an economy. It breaks the economy down into two primary
players: households and corporations. It separates the markets that these
participants operate in as markets for goods and services
5.Distinguish the following concepts: -Fiat Money vs. Commodity money.
A fiat money is a legal claim as it attains all its properties from the law. It is just
like a purchase voucher that can be used as an exchange for goods and services
and its purchasing power varies. The only fixed right associated with the fiat
money is the settlement of debts. Fiat money is money whose value is not derived
from any intrinsic value or guarantee that it can be converted into a valuable commodity
(such as gold).
Commodity money is money that derives its value from a commodity of which it is
made. It can be exchanged on demand for a specific commodity. Commodity money
has some intrinsic value due to the content of precious metal it is made up of or backed by, but
debasement or increases in precious metal supply can cause inflation. Fiat money is backed only by
the faith of the government and its ability to levy taxes
6. What is a banking system? Explain the structure of Ethiopian banking system.
A banking system is a group or network of institutions that provide financial
services for us. These institutions are responsible for operating a payment system,
providing loans, taking deposits, and helping with investments.
Ethiopian banking sector is currently comprised of a central bank (The National
Bank of Ethiopia or NBE), one state owned development bank, a government
owned commercial bank  and sixteen private banks. 
Currently, Ethiopia has allowed a small number foreign banks to open liaison
offices in Addis Ababa to facilitate credit to companies from their countries of
origins. Chinese, German, Kenyan, Turkish, and South African banks have
opened liaison offices in Ethiopia.
NBE aims to foster monetary stability and a sound financial system,
maintaining credit and exchange conditions conducive to the balanced growth
of the economy

7. Rank the following bank assets from most to least liquid:The bank assets
are the assets which a bank owes and have rights over those assets. Few of the bank assets
include cash held, securities of government and those loans which are interest bearing
earnings. These act as a barrier for debt holdings of the bank.
The most liquid asset was securities and the second was physical capital, the third is
commercial loans and the least liquid asset is
8. 8. In what ways can the National Bank of Ethiopia influences the conduct of
monetary policy?
The financial history of Ethiopian shows that following the nationalization of private

banks and other financial institutions in 1974 there were only few government banks

operating through out the country till 1994/5 namely Commercial Bank of Ethiopia,

Construction and Housing Bank and Agricultural and Development Bank. During this

period the National Bank of Ethiopia conduct its monetary policy by directly

controlling monetary variables and prices.

The NBE set the interest rate structure in such a way that it discourages private sector

and favours public institutions and specially cooperatives and associations.

Accordingly, the private sector was charged the highest rate in all kind of loans.

9. Discuss the different types of Banks.

Retail banks
Retail banks, also known as consumer banks, are commercial banks that offer
consumer and personal banking services to the general public. Most retail banks
offer checking accounts, savings accounts and retirement accounts.
Consumer banking institutions may also offer different retail credit products to
individuals and families, such as auto loans and credit cards.

Commercial banks
Some banks — or departments within banks — focus on serving corporate,
nonprofit and government clients. These banks are often called business or
commercial banks as a reference to their customer base. Often, commercial
banks offer special financing and loan products for businesses, such as
commercial real estate and equipment loans.

Investment banks
Instead of focusing on lending, investment banks make money through investing
either their own money or a client’s money. For example, an investment bank
may help clients with mergers and acquisitions, or help a private company go
public through an initial public offering.

Online and neobanks

some times online banks also called neobanks or virtual banks aren’t actually
banks. These tech-forward companies create attractive and easy-to-use
interfaces for consumers and may offer a variety of perks. But they generally
partner with a traditional bank that holds customers’ deposits and manages the
behind-the-scenes finances.

There are a few exceptions, though online banks are starting to get approved for
national charters or purchasing small banks that already have a national charter.

Credit unions
A credit union is a financial institution that’s cooperatively owned and run by its
members. Like banks, these not-for-profit organizations also accept deposits and
offer loans. But unlike banks, credit unions pass earnings on to members rather
than shareholders.

Savings and loan associations

Savings and loan associations, also known as thrifts, are a type of financial
institution that focuses on helping people become homeowners. Unlike banks,
which are solely owned by shareholders, customers and shareholders can
mutually own a thrift.

10. 10. Compare and contrast the Balance sheet and Income statement of Commercial Bank of
Ethiopia and Unity university