UNIT 6

1. Most central banks in present-day world perform one of the following functions
(1) They serve as the government’s banker. As a government’s banker, central bank collects and
disburses (giai ngan) government’s income, manages the issue and redemption of
government’debts, advises the government on all matters pertaining ti financial activities and
makes loans to the government
(2) They act as the babker of the banking system. As the banker of the banking system, central
bank holds and transfer bank’s deposits, supervises their operation, acts as a lender of the resort
and provides technical and advisory services
(3) They regulate the monetary system for both dosmetic and international policy goals
(4) They issue the nation’s currency

2. A central bank can implement the monetary system by

- They set a reserve requiremetn. Reserve requirement is a percentage of deposits that the
central bank sets as minimun amount of reserve’s bank must have. It plays a central role in how
much money banks must have. By changing the reserve requirement, the government can
increase or decrease the money supply. If the government increase the RR, it contracts the
money supply, banks have kept more in reserve and have less money to lend out.
- They use an open market operations to buy and sell sercurities from member banks. OMOs are
the government’s buying and selling of the government sercurities. To contract the money
supply, the government sells bonds. To expand the money supply, the government buys bonds
- They set target on interest rate they charge to member banks. The discount rate is the rate of
interest that the central bank of a country charges on the loans that it makes to other banks. An
increase in the discount rate makes it more expensive for banks to borrow from government. A
decrease in the discount rate makes it less expensive for banks to borrow

3. Functions of commercial banks are to maintain and create demand deposits by loans and
investments as well as creating the money in cicurlation in saving babks and share draff in
credit unions

4. There are four funcions of money:

- 1, money as a medium of exchange: anything widely accepted in payment for goods, sevices
or debts
- 2, money as a measure of value: money measures the value in the unit of account as USD,
UND, RMB
- 3, money as a store of value because is can be saved to make purchases at a later time
- 4, money as a standard of deferred payment: with the use of installment buying, this function
becomes more and more important

5. There are 2 types of money: commodity money and token money. Commodity money is
defined as a useful goods which serve as a medium of economic exchange. Its value in use is
about equal to the value of material. Whereas, Token money is a means of payment, its value in
use is much higher than the value of material.