Finance Tips

Money is one of the man’s greatest inventions, an essential tool of civilization, because every society has a money economy based on coins and paper notes. In primitive society there was a barter system which is the direct exchange of goods and services for goods and services. As the extent of specialization increases, the barter system proves very inefficient. The great disadvantage of barter is the fact that it depends upon a “double coincidence of wants”. It means that the seller and the buyer each must want something the other has to offer. Each person is simultaneously a seller and a buyer. A hunter who wants to exchange his skins for corn must find, not merely a person who wants skins, but someone who wants skin and has surplus of corn for disposal. Trading is very expensive in a barter economy. Time and energy, which could be devoted to production, is spent to laborious system of exchange.

Quite early in his history man discovered a much more convenient arrangement. The use of some commodity as a medium of exchange makes exchange triangular and removes the major difficulty of the barter system. If the commodity is generally acceptable in exchange for goods and services, it is money. A producer now exchanges his goods for money and the money can be exchanged for whatever goods and services he requires.

There are 4 general functions of money:

- Money as a medium of exchange.

- money as a standard of value.

- Money as a store of value.

- Money as a standard of deferred payment. Continue reading ‘Money and Central Banking’ »

The Banks in India Face the problems of swelling non-performing assets (NPAs) and the issue is becoming more and more unmanageable. The NPAs have direct impact on banks profitability, liquidity and equity. The NPAs of Indian Banks are relatively huge by international standard. Therefore the biggest ever challenge that the banking industry now faces is management of NPAs. It is true that banks have to restrict their lending operations to secured advances only with adequate collateral securities.

In this connection banks must aware of the problems and recovery legislations of NPAs Non performing assets means an advance where payment of interest or repayment of installments of principal or both remains for a period of more than 180 days.

The magnitude of NPAs have a direct impact on banks profitability as legally they are not allowed to book income on such accounts and at the same time banks are forced to make provision on such assets as per the RBI guidelines. The Indian Banking sector is facing a serious situation in view of the mounting NPAs which are the tune of Rs.56,000 crores in March 2002.NPAs is an important parameter in the analysis of financial performance of banks. The reduction of NPAs is necessary to improve profitability of the banks and comply with capital adequacy norms. Continue reading ‘Money and Central Banking’ »