1. Money and Finance
SEPTEMBER 2012

2. The Money Market
 Where?
 Made up of all those people and organizations that want
money, and all the people and organizations willing and able to
supply money (namely a banking system that creates deposit
money and a central bank that issues notes and coins).

3. The Money Market
 Banks = main type of financial institutions
 Product is money, in the form of loans and other financial
products.
 A financial intermediary because it brings together customers
who want to save money and customers who want to borrow it.

4. What Banks Do
 Accept deposits of money and savings from their
customers.
 Use customers’ money to make more money through
loans.
 Charge interest on loans.
 Task: If a customer borrowed $1,000 repayable over
one year in 12 monthly installments and is charged
interest at 5% of the loan, how much must the
customer repay the bank in total? (Interest rate
represents the cost of borrowing money.)

5. Purpose of Interest Charges
 Some customers can’t repay the loans, hence,
making loans is risky. As a result, the greater the
risk, the higher the interest rate a bank will charge.
 Interest charges help to compensate a bank for any
reduction in value of the money it has tied up in
loans due to rising price inflation.

6. What Banks Do
 Charge fees for the provision of other financial
services.
 Withdrawals from automated cash machines.
 Exchanging and transferring foreign currencies.
 Buying and selling shares in public limited companies.
 Providing life, property and travel insurance.
 Issuing debit and credit cards.
 Storing valuables.

7. What Banks Do
 Charge fees for the provision of other financial
services.
 Organizing customer payments in the form of cheques or
electronic transfers (telegraphic transfer/ remittance) to the
bank accounts of other people, businesses or government
authorities.
 Telephone and Internet banking services.

8. What Banks Do
 Make investments in the shares of other public
limited companies by using the money deposited by
its customers.
 Banks make money when selling shares that have increased in
value.
 Banks make money from the profits made by the companies
they have invested in.

10. The 10 biggest banks in the world
by market value
Banking Group Profit 2010 Market value
US$ billion US$ billion
Industrial & Commercial Bank of China 16.3 210.3
China Construction Bank 15.6 192.6
HSBC 6.0 171.8
JP Morgan Chase 11.7 143.7
Bank of China 11.9 127.1
Bank of America 6.3 127.0
Wells Fargo 12.3 123.5
Citigroup -6.1 106.6
BCO Santander 12.8 93.5
Ita Unibanco 5.8 83.7

11. Types of Bank
 Commercial bank
 Credit unions
 Mutual societies
 Investment banks
 Islamic banks

12. Commercial Banks
 Also called ‘high-street banks’ because they have
retail branches located in most cities and town. But
 Many banks provide telephone and online banking
services so their customers don’t have to visit the
branch.
 E.g. HSBC, Citigroup, Bank of America, Barclays
Bank

13. Commercial Banks
 Established to provide financial services for small
businesses but now they serve everyone.
 Provides a range of services:
• Accepting deposits of money & • Providing insurance
savings
• Helping customers make and receive • Operating pension funds
payments
• Making personal and commercial • Providing financial & tax planning
loans advice
• Buying and selling of shares for • Exchanging foreign currencies
customers

14. Credit Unions
 A cooperative, not-for-profit organization, owned by
and for its members.
 Started by people people who worked or lived
together to provide low-cost loans to members who
couldn’t borrow from banks.
 Popular in the US.
 Services provided include checks, credit cards and
loans to small businesses.
 E.g. America’s Credit Union, UK Credit Union

15. Mutual Societies
 Known as savings and loans associations or building
societies in some countries.
 Owned and run on behalf of their members or
customers.
 Specialized in providing mortgages to buy property
but now provide many commercial banking services
as well.
 E.g. Northwestern Mutual

16. Investment Banks
 Specialize in helping large business organizations
raise finance to fund their operations and expansion,
usually through helping them to issue and sell stocks
and shares on the stock market.
 Also provide advice on company mergers and
takeover.
 E.g. J.P. Morgan Chase, Morgan Stanley, Bank of
America Merrill Lynch, Deutsche Bank.

17. Islamic Banks
 Based on the principle of Islamic Sharia Law, which
forbids interest charges and payments, banks
earn money by charging customers for banking
services, including making loans, and people who
deposit their money will earn a share of the bank’s
profits instead of paid interest.
 Many multinational banking organization, e.g.
HSBC, also provide Sharia compliant banking
services in many countries.
 E.g. Bank Melli Iran, al Rajhi Bank.