TUTORIAL 3 TOPIC 3 (MONETARY & BANKING)

RES 455 (ECONOMICS OF BUILT ENVIRONMENT II)

TOPIC 3 : MONEY AND BANKING

1. Differentiate between Central Bank and Commercial Bank

CENTRAL BANK COMMERCIAL BANK

Definition - Controlled by the - A bank that are owned by

government. private sectors & profit-
- A national bank. making institutions.

Profit/non-profit making Non profit making. Profit making.

Example/s of bank Bank Negara Malaysia (BNM) Maybank Berhad, CIMB Berhad,
and Ambank Berhad.

Functions:

1. Accept deposits—depending on Operating for monetary gain

deposits from customers, such as under the direct control and
savings and deposits. supervision of the Central Bank.

2. Provide loans and advances such Serves the financial requirements

as for personal, business, cars, of the general public by providing
and education. short and medium term loans.
Increasing the interest rate and
gaining profit.

3. Act as custodian of foreign Does not issue currency,but only

exchange of the country. adds to the money supply by
creating demand deposits.

4. Control credit creation in the Performs foreign exchange

economy. business only on the approval of
Central Bank.

5. Does not deal directly with public. Acts as agents of Central Bank.
 2. Differentiate the following non-bank financial institutions
Definition Examples of bank Functions
/description

1. Islamic Banks -based on Bank Islam, RHB -Islamic bank works as a

Syariah Islamic Bank, Bank trading concern to generate
principles. Muamalat. its income.

2. Finance companies -the services are Maybank Finance -provide loans for the
similar to banking Berhad, Public purchase of vehicles &
institutions but Finance Berhad, purchase of properties.
finance Eon Finance
companies do not Berhad, Hong Leong
issue cheques, Finance Berhad.
bank drafts &
foreign exchange.

3. Investment Bank -do not accept AmInvestment Bank -provide support services &
deposits from Berhad, Affin advice to firms, financial
public. Investment Bank management & portfolio
Berhad, Kenanga management.
Investment Bank
Berhad.

4. Development Financial -government SME Bank Berhad, -provide loans & financial
Institutions owned bank to Bank Rakyat, Bank assistance to firms & farmers.
promote Pembangunan
investments in Malaysia Berhad,
industrial & BSN, Agro Bank,
agriculture Tabung Haji.
sectors.

5. Employees Provident -employer & -this scheme is very

Fund (EPF) employees beneficial for all employees
contribute a after their retirement.
certain -employer (company) : 13%
percentage for any wages less than
of the income to RM5,000 & 12% for any
EPF every month. wages more than RM5,000
-employee (staff / workers)
:11%
 3. Differentiate between Inflation and Deflation (choose the correct controlling measures)
INFLATION DEFLATION

Definition continuous increase in general

price level of goods and
services.

CONTROLLING MEASURES

Monetary Policy:

Expansionary or Contractionary ⬆ Expansionary ⬇

Contractionary Monetary
Policy

Increase or Decrease Money supply

Sell or Buy Securities

Increase or decrease
Bank rate /Discount rate

Increase or Decrease Reserve ratio

increase or Decrease Interest rate

1
Strict or Less strict
Selective/ Mortgage control

Strict or Less strict Moral suasion

Fiscal Policy:

Expansionary or
Contractionary Fiscal Policy

Increase or Decrease Tax

Increase or Decrease
Government expenditure
Direct Control:

1.

2.

3.

4. Identify the following monetary tools (tick either quantitative or qualitative)

QUANTITATIVE QUALITATIVE

Monetary Policy:

Sell /buy securities (Open

Market Operation)

Bank rate/Discount rate

Reserve ratio

Interest rate

Selective credit control/

Mortgage control

Moral suasion

5. Give a definition of money - Current medium of exchange to buy goods and services in the forms of
coins and notes.

6. List 4 types of money - coins, notes, current deposit, near money.

7. List 5 characteristics of money - scarcity, stable in value, portable, divisible and standardized, durable.

8. List 4 functions of money - medium of exchange, unit of account, store of value, standard of deferred
payment.

9. Define supply of money - M1 = (coins+notes)+current deposit, M2 = (M1 + narrow near money)

(savings & fixed deposit with commercial banks & BNM+negotiable bills+BNM’s certificates), M3 = M2
+(saving & fixed deposit with other financial institutions, merchant banks & discount house)
10. Identify the various supply of money - government, people, businesses, organizations.

11. Define credit creation - The money that commercial banks supply. When depositor deposits the
money to bank & the bank use the money to give loans to public.

12. Explain the implication of monetary policy on real estate -