Module-A Money and Monetary System

Q-1). What is money? What are the Characteristics of Money? ***

Money is anything that is accepted by people as a medium of exchange for the payment of goods and
services, as well as the repayment of loans.

The characteristics of money are durability, portability, divisibility, uniformity, limited supply, and
acceptability. Let's compare two examples of possible forms of money

Durability. A cow is fairly durable, but a long trip to market runs the risk of sickness or death for the cow
and can severely reduce its value. Twenty-dollar bills are fairly durable and can be easily replaced if they
become worn. Even better, a long trip to market does not threaten the health or value of the bill.

Portability. While the cow is difficult to transport to the store, the currency can be easily put in my
pocket.

Divisibility. A 20 TK Bill can be exchanged for other denominations, say a 10TK, a 5TK, five 2TKs. A cow, on
the other hand, is not very divisible.

Uniformity. Cows come in different sizes and shapes and each has a different value; cows are not a very
uniform form of money on the other hand 1000 TK notes are all the same size and shape and value; they
are very uniform.

Limited supply. In order to maintain its value, money must have a limited supply. While the supply of
cows is fairly limited, if they were used as money, you can bet ranchers would do their best to increase
the supply of cows, which would decrease their value. The supply, and therefore the value, of 20-dollar
bills—and the supply of money in general—are regulated by the BB so that the money retains its value
over time.

Acceptability. Even though cows have intrinsic value, some people may not accept cattle as money. In
contrast, people are more than willing to accept a 100 or 1000 TK note.

Q-2). What are the functions of money? **

Money is often defined in terms of the three functions or services that it provides. Money serves as
a medium of exchange, as a store of value, and as a unit of account.

Medium of exchange Money's most important function is as a medium of exchange to facilitate

transactions. Without money, all transactions would have to be conducted by barter, which involves
direct exchange of one good or service for another. The difficulty with a barter system is that in order to
obtain a particular good or service from a supplier, one has to possess a good or service of equal value,
which the supplier also desires. In other words, in a barter system, exchange can take place only if there
is a double coincidence of wants between two transacting parties. Money effectively eliminates the
double coincidence of wants problem by serving as a medium of exchange that is accepted in all
transactions, by all parties, regardless of whether they desire each others' goods and services.

Store of value In order to be a medium of exchange, money must hold its value over time; that is, it must
be a store of value. Money may not even be the best store of value because it depreciates with inflation.
However, money is more liquid than most other stores of value because as a medium of exchange, it is
readily accepted everywhere. Furthermore, money is an easily transported store of value that is available
in a number of convenient denominations.
Q-6). Define Demand for Money. Why do people hold money? ***

The demand for money refers to the desire and willingness of individuals, businesses, and institutions to
hold money for various purposes. It is influenced by several factors:

1. Transaction demand: The demand for money arises from the need to conduct day-to-day
transactions. People hold money to facilitate their regular purchases of goods and services. The
transaction demand for money is influenced by factors such as income levels, price levels, the
frequency of transactions, and the convenience of alternative payment methods.

2. Precautionary demand: People hold money as a precautionary measure to meet unexpected or

unforeseen expenses or emergencies. It serves as a buffer or safety net, providing financial
security and liquidity when needed. The precautionary demand for money depends on individual
preferences for liquidity, income stability, and the perceived uncertainty or riskiness of future
events.

3. Speculative demand: Some individuals may hold money with the expectation that its value will
increase in the future. This speculative demand for money is often driven by concerns about
future economic conditions, such as anticipated price changes or investment opportunities. It is
influenced by factors such as interest rates, inflation expectations, and the perceived risk and
return of alternative investments.

4. Institutional and regulatory factors: The demand for money can also be influenced by
institutional factors and government regulations. For example, legal tender laws may require
individuals and businesses to hold a certain amount of money for transactions. Additionally,
financial regulations and capital requirements imposed on banks and other financial institutions
can affect the demand for money within the banking system.

It's important to note that the demand for money is dynamic and can change over time due to shifts in
economic conditions, technological advancements in payment systems, changes in financial regulations,
and shifts in individual preferences.

Q-7). What are the differences between Transaction Motive and Precautionary Motive**

The transaction motive and the precautionary motive are two distinct reasons for holding money, each
serving different purposes. Here are the key differences between these two motives:

1. Transaction Motive:

o Purpose: The transaction motive for holding money is driven by the need to facilitate
day-to-day transactions and fulfill regular payment obligations.

o Nature: It is a short-term motive as it involves holding money for immediate or near-

future transactions.

o Frequency: The demand for money based on the transaction motive depends on the
frequency of transactions an individual or business engages in.
 o Influencing Factors: The transaction motive is influenced by factors such as income
levels, price levels, the convenience of alternative payment methods, and the availability
of credit.

o Example: A person holding money in their wallet or bank account to cover routine
expenses like groceries, bills, or transportation costs.

2. Precautionary Motive:

o Purpose: The precautionary motive for holding money arises from the need for financial
security and the ability to cope with unexpected or emergency expenses.

o Nature: It is a long-term motive as it involves holding money as a precautionary measure

against uncertain future events.

o Uncertainty: The demand for money based on the precautionary motive is influenced by
the perceived level of uncertainty or riskiness regarding future income stability and
unforeseen expenses.

o Influencing Factors: Factors such as individual preferences for liquidity, income stability,
and the perceived risk of adverse events play a role in determining the precautionary
demand for money.

o Example: Setting aside savings or maintaining an emergency fund in a bank account to

cover unexpected medical expenses, job loss, or major repairs.

In summary, the transaction motive is driven by the immediate need to conduct day-to-day transactions,
while the precautionary motive is driven by the desire for financial security and preparedness for
unforeseen events. The transaction motive focuses on short-term liquidity needs, whereas the
precautionary motive emphasizes long-term financial stability.

Q-11). Describes role of Bangladesh Bank for maintaining Monetary system.*

The Bangladesh Bank, as the central bank of Bangladesh, plays a crucial role in maintaining the country's
monetary system. Here are some key roles and functions of the Bangladesh Bank in relation to the
monetary system:

1. Monetary Policy Formulation: The Bangladesh Bank is responsible for formulating and
implementing monetary policy in the country. It sets targets for key monetary aggregates, such
as money supply, interest rates, and inflation, with the objective of maintaining price stability
and promoting sustainable economic growth. The bank uses various policy tools, including open
market operations, reserve requirements, and policy interest rates, to manage liquidity in the
banking system and influence the overall monetary conditions.

2. Bank Supervision and Regulation: The Bangladesh Bank acts as the regulatory authority for the
banking sector in Bangladesh. It supervises and regulates banks and NBFIs to ensure their
stability, soundness, and compliance with prudential regulations. This includes managing capital
adequacy, risk management, corporate governance, and consumer protection in the financial
sector.

3. Currency Issuance and Management: The Bangladesh Bank has the sole authority to issue
currency notes and coins in the country. It ensures an adequate supply of currency in circulation
 to meet the demand for cash transactions. The bank manages the distribution, circulation, and
security of currency to maintain the integrity and efficiency of the payment system.

4. Foreign Exchange Management: The Bangladesh Bank plays a crucial role in managing the
country's foreign exchange reserves and regulating foreign exchange transactions. It formulates
and implements policies to promote a stable exchange rate and manage the balance of
payments. The bank intervenes in the foreign exchange market to maintain exchange rate
stability, manage capital flows, and ensure sufficient reserves to meet external obligations.

5. Development and Promotion of Financial Markets: The Bangladesh Bank works towards the
development and promotion of efficient and inclusive financial markets in the country. It
establishes and regulates various money market instruments, government securities, and other
financial instruments to foster a well-functioning market for liquidity management and
investment. The bank also takes initiatives to enhance financial inclusion and promote access to
financial services for underserved segments of the population.

6. Data Collection and Economic Research: The Bangladesh Bank collects, compiles, and analyzes a
wide range of economic and financial data to support its policy formulation and decision-making
processes. It conducts research and publishes reports on various aspects of the economy,
monetary trends, and financial stability. This information helps policymakers, market
participants, and the public to understand the state of the economy and make informed
decisions.

Overall, the Bangladesh Bank plays a pivotal role in maintaining the stability, efficiency, and integrity of
the monetary system in Bangladesh. Its actions and policies have a significant impact on interest rates,
inflation, banking sector health, exchange rates, and overall economic performance in the country.

Q-15). Role of Banking System for Secondary Money Creation in BD Economy**

Q-16). Define money supply. How can a central bank control the money supply? ***

Q-17). Distinguish between “High powered Money” & “Broad Money”? **

Q-26). Distinguish between monetary and fiscal policy. *

Q-27). "Monetary policy is more effective than fiscal policy."---Do you agree? Explain. **
Q-29). Monetary policy of a developing country like Bangladesh can’t be fully independent of fiscal policy.
– Do you agree? Justify your answer.**
Q-30). Define inflation. What are its pervasive effects? How inflation can be checked effectively?***
Q-36). How can you explain country’s positive Balance of Trade (BOT) position in a given period and its
impact to the economy? **

Q-40). Differentiate between Balance of Trade and Balance of Payments. **

Q-47). What are the preconditions which are to be met if convertibility to be successfully implemented? *
Q-48). What do you mean by foreign rate of exchange? How is foreign rate of exchange determined? **
Q-49). Distinguish between fixed and floating (flexible) exchange rate. ***
Q-50). Distinguish between floating/flexible exchange rate and managed floating exchange rate. **

Module-B: Payment System

Q-1). Define Payment System. Describes Different payment options in Bangladesh. *** Q-2). Define
Cheque and classification of cheque as per NI act 1881. **

Q-6). What is plastic money? Where we can use plastic money? What types of plastic money are used in
Bangladesh? **
Q-7). What are the concept/features of mobile financial services (MFS)? Or What do you mean by
interoperability of Mobile Financial Services? What might be its benefits? **

Q-8). Discuss the problems and prospects of MFS in Bangladesh. How can we overcome those problems?
Or, Put forward the problems and prospects of Mobile Financial Service (MFS) in Bangladesh. How can
those problems be overcome? ***
Q-9). How MFS and Agent Banking contribute to deepen financial inclusion? **

Module-C: Financial System

Q-1). Define finance. What are the modes of finance? ***
Q-4). What are the Classification of Banking sector? **
Q-5). What do you mean by Non-Bank Financial Institutions (FIs)? Explain its features. ***
Q-7). Describes Dhaka Stock Exchange and Explain its major functions. **
Q-8). Define central Bank of the Country and its main functions. ***
Q-10). Securities and Exchange Commission (SEC) acts as the regulator of Capital Market Intermediaries
and narrate its functions. **
Q-11). Who are the capital market intermediaries describes in brief. **
Q-13). What are the main challenges facing the global financial system today? What steps can
governments and financial institutions take to address these challenges ***
Q-16). Discuss the potentials and challenges of mobile banking and services in terms of financial
inclusion. **
Module-D: Financial Institutions
Q-2). Why Central Bank is termed as the banker to the government? Explain the statement in the context
of Bangladesh. ***
Q-3). Discuss the main function of the modern Central Bank. What kind of relationship between the
central bank and the government, according to you is ideal for the growth of Bangladesh's economy? **
Q-5). What are the main sources of fund of financial institutions? **
Q-7). What is commercial bank? Describe the main functions of a commercial bank. **
Q-8). Define deposit and loan products of a commercial bank. Discuss the importance of marketing new
loan product. ***
Q-9). Explain the impact of classified loans on interest rates of banks and financial institutions. ***
Q-13). Describe present state of financial crisis faced by non-bank financial institutions. **
Q-14). Distinguish between a commercial bank and a non-bank financial institution. Or What are the
difference between bank and non-bank financial institution? **
Q-18). What is SME financing? What SME products are offered by different banks? Write salient features
of SME Products. ***
Q-26). Describe the importance of cyber security in banking to protect the interest of banks as usual as
the customers. **
Q-27). What is bank rate? How Bangladesh Bank controls the credit by changing bank rate? Give example
** Q-28). ln your opinion, what legal and regulatory steps should be taken to rescue the non-bank
financial institutions from present crisis? ***
Q-29). What is online banking? Give example. What are the limitations of online banking? **
Module-E: Financial Markets
Q-3). Define Money Market. Describes about Money market instruments. **
Q-4). What is meant by Capital Market? Discuss the characteristics of the Capital Market in Bangladesh?
*** Q-7). What steps do you suggest to develop securities markets in developing countries like
Bangladesh? ** Q-9). What is meant by OTC Market? Write down its features. ***
Q-10). What are the types of Capital market in Bangladesh? Discuss the characteristics and how it works
Primary Market. **
Q-11). What is an Initial Public Offering and How to Make an Offering to the Public in Bangladesh? ** Q-
17).DefineMicro-creditMarket.WhataredifferencebetweenmicrocreditandmicrofinanceinbdEconomy? **
Q-18). Describes about International Financial Market. what are segments of international financial
market? ** Q-19). What are the Instruments that used in International Financial Market ***
Q-20). Who are Key Players in FX Markets? **
Q-21). What are Motives for Using the International Money & Capital Markets? **
Module-F: Islamic Financial System
Q-2). What do you mean by Islamic Banking? Describe the prospective of Islamic Banking. *** Q-5).
Describes Islamic Economics. what are the basic principles of Islamic economic system. **
Q-6). What are the main principles of Islamic finance, and how do they promote social justice, economic
equality, and responsible investment? **
Q-9). How does Islamic finance differ from conventional finance in terms of its principles and practices?
** Q-10). How does Islamic finance promote financial inclusion and encourage participation by all
members of society? **
Q-11). What are the sources of Shariah law and how are they used in Islamic jurisprudence? ***
Q-12). What are the main types of Islamic financial instruments, and how are they used in Islamic
finance? *** Q-13). How do sukuk (Islamic bonds) work, and what are their benefits and risks? **
Q-15). What is the difference between a Mudarabah and a Musharakah in Islamic finance, and how are
they used as financing instruments? **
Q-16). Difference between Islamic banking & Traditional banking ***
Module-G: Regulatory Framework for Financial, Monetary and Payment System:
Q-1). Describe the role of Bangladesh Bank as a regulator of the financial system of Bangladesh. Or, How
Bangladesh Bank regulates and supervises the financial system of Bangladesh? ***
Q-3). What is the role of Bangladesh Bank in maintaining financial stability in the country? **
Q-5). Describes about Bangladesh Securities and Exchange Commission (BSEC) and its functions. ***
Q-6). Discuss about Insurance Development and Regulatory Authority (IDRA) and its functions. ***
Q-7). Discuss the goals and funtions of Microcredit Regulatory Authority (MRA). **
Q-8). Describe the functions and responsibilities of BFIU. (July/2019) or Or, Discuss the main functions of
BFIU. **