Professional Documents
Culture Documents
Class 16
Class 16
Money supply has an impact on key economic indicators like GDP growth, inflation, and interest
rates.
The crucial factor is the state of my economy, specifically whether the supply curve is level,
vertical, or steeper.
The unemployment rate determines where my economy is located; R1 has a low unemployment
rate. (Lower labour bargaining power can boost production without increasing costs.)
Money supply has a direct impact on liquidity, which therefore has an impact on interest rates
and the financial market.
Follow the money supply, the interest rate, and the capital markets.
Businesses -> Households -> Banks (return to the flow of cash diagram)
Earning spread: The distinction between the loan rate and the deposit rate
Interest rate risk and credit risk are two major risks.
Potential issues include improperly measuring credit worthiness (which results in adverse
selection due to information asymmetry) and improper usage of funds (which creates a moral
hazard issue).
There will be a probability of credit risk if a significant section of the portfolio defaults on the
loans.
Concentration risk: quite high in BD, 6 people in CTG when lending to a single individual
5 financial statements plus an off-balance sheet statement and a liquidity statement (required by
regulation) equal 7 financial statements for the bank.
Assets (Fund Use) Owners' Equity and Liabilities (Source of Fund)
Cash (5%)
The Bangladesh Banking Act (Sections 8 to 12) establishes the kind of activities that banks may
and may not engage in.