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Concept of Money
Central BanksECON/GM 561University of PhoenixCentral BanksIntroduction
Concept of Money
Money’s a medium of exchange, for the buying and selling of goods and services. It‘s a social invention for which resources suppliers and producers pay, and receive payment from between two or more individuals, within a marketplace. Money is also a unit of account, such that it determines the value of goods in that currency. Societies have used many items as money, and anything that is widely accepted, can be used as a medium of exchange. Money typically consists of currency, coins and paper money, in the hands of the public. Furthermore, all checkable deposits exist, on which checks of any size ban be drawn.
The Role of Money
The role that money plays in the economy: “a medium of exchange that is usable for convenience with reference to buying and selling goods and services. It allows society to escape the complications of barter.” It‘s also permits definition of debt obligations, determination of taxes owed, and calculation of nation’s GDP.” Money is a storage place for value.
Checkable Deposits
How do banks create checkable deposits by issuing loans? This is the process banks create checkable deposits by issuing loans. A company goes to a bank, requests a loan, as long as their financial sound to the point that the bank believes it will be repaid, the company is granted the loan and given a promissory note. A promissory note is an IOU (physical check or money order), which consumers present at commercial banks as a medium of exchange. The previously stated shows the change in the composition of the money supply, which doesn’t change the total supply. The promissory note can also be given to the company in the form of a bank account, so the company can carry and use the funds conveniently (it’s not easy to carry large amounts of cash around to conduct activities, like shopping). The issuing of an account provides the bank with an interest-earning asset (promissory note, labeled as a loan) and creates checkable deposits (a liability). The issuing of a loan (IOU) is viewed as liabilities by the bank considering they are claims that banks and thrifts promise to pay “on demand.”
Central Bank differences
How are central banks different from other banks in terms of functions in national economy? Central bank is the manager of nation’s supply of money and credit and operates at the center of the nation’s financial system. It’s the banker for the federal government and the supervisors and regulation authority for a majority portion of nation’s banking and financial system. In 1913, after large amounts of deliberation, Congress passed the Federal Reserve Act to balance the financial needs of the country, to make sure that there is organized money and credit flow within the economy. Commercial Banks are institutions, which are mainly concerned with accepting deposits and making business loans, but they also offer related services. They also allow for a variety of deposit accounts, such as checking, savings, and time deposits. These institutions exist to make profits and owned by groups of individuals, yet some may be members of the Federal Reserve System. The difference between the central banks and other banks is the fact that central banks are in existence to keep the flow of credit and cash organized within the countries, while other banks exist to make a profit for the bank owners. The central banks are the issuers as directed by their board, which is given authorization by the government to put into circulation cash (paper money).
Reserve Bank of India
The Reserve Bank of India is the centralized banking authority of India. The Reserve Bank of India helped stabilize the domestic economy by regulating and supervising the financial institutions and markets. There was, however, a decline in the real GDP growth from 8.8 percent in 2003-08 to 6.7 percent in 2008-2009 (Reserve Bank of India, n.d.). The Reserve Bank of India did address policy changes in three primary sectors to help soften the global recession in 2008-09. The agriculture and allied activities has been supplemented and complemented by strengthening the farmers’ livelihood and income through programs such as the national Food Security Mission, Rashtriya Krishi Virkas Yojana, and the National Rural Employment Guarantee Scheme. The Reserve Bank also helped the industrial segment of the economy by giving indirect tax cuts and infrastructure spending, easing liquidity and interest rates, and encouraged banks to extend credit to smaller industries. Finally, the Reserve Bank of India granted permission to raise tax free bonds, remove interest ceilings on external commercial borrowing, advance the cap on investment in corporate debt market, eased refinance restriction from the Reserve Bank, and created the Special Purpose Vehicle to lend to non-bank financial companies (Reserve Bank of India, n.d.).
Monetary Authority in the United States
In economics, monetary authority is a term “for the entity which controls the money supply of a given currency, and has the right to set interest rates, and other parameters which control the cost and availability of money. Generally a monetary authority is a central bank, though often the executive branch of a government has de facto control over monetary policy by controlling the central bank. It’s important for Big Drive Auto to recognize that the monetary authority in the United States must be valued and understood not only from an economic standpoint, but also from a matter of law. It’s favorable for Big Drive Auto that the United States Government uses these measures to attempt to accomplish and/or sustain economic growth, price stability, and low levels of unemployment. (Richard M. Ebeling. 2003) The current and inevitable events of the banking crisis in the United States continue to force the political institution to face the need of necessary reform of the monetary and banking systems. Currently, the U.S. inflation has been unchanged for much of 2010. The U.S. Federal funds rate sets at 0.25%, and the discount rate is 0.75%. This has left the U.S. in a liquidity trap, making it difficult to stimulate economic growth without risk of severe inflation.
Bank of England
Currently, the Bank of England is dealing with a core consumer price index of 3.1% for the month of July, down from 3.2% in June. The United Kingdom has experienced downward pressure on their core CPI in transportation costs, clothing and footwear, miscellaneous goods and service, and recreation and culture. The largest upward pressure to the core CPI was in food and non-alcoholic beverages, furniture, household equipment and maintenance. The United Kingdom core CPI shows that its rate in June was above the provisional figure for the European Union as a whole was 1.9%. It’s apparent that the Bank of England is successfully managing the growth rate of the credit, and interest rates because their inflation rate is decreasing, and they are showing signs of economic growth. This is also important because monetary policy in the United Kingdom will impact other countries such as the United States and the European Union. This occurs because of value of their currency. As their currency decreases, the prices of imports go up, affecting other countries.
Conclusion
There are a number of central banks that appear to be effectively managing the growth rate of credit and interest; they are the Bank of England, and the Reserve Bank of India. The Bank of England has a CPI above the European Union by 1.9%. The Reserve Bank of India has helped stabilize the domestic economy by regulating and supervising the financial institutions and markets. The Bank of England using the present methods shows signs of stabilizing a domestic economy provided they can deal with the decline of their consumer price index. The United States Federal Reserve shows signs of being in trouble considering that though the economy is starting to rebound, it is fragile and has a possibility of going into hyperinflation status or deeper depression. The U.S. Federal Reserve has to implement many policies to have a chance to stabilize the domestic economy. The Bank of Japan is economically experiencing deflation, which they have yet to find a way to change and therefore they are not effective in stabilizing their domestic economy. The effect one central bank has on the global financial system is dependent on its size. If the U.S. Federal Reserve is unable to stabilize the U.S. financial system, further turmoil can result due in part to the size of the U.S. economy.
References
Ebeling, R.M. (2003). Ninety years of monetary central planning in the United States. Retrieved from http://www.thefreemanonline.org/from-the-president/ninety-years-of-monetary-central-planning-in-the-united-states/
Federal Reserve Bank of San Francisco. (2010). Federal Reserve Bank of San Francisco. Retrieved from http://www.frbsf.org/publications/federalreserve/fedinbrief/central.html
Gerber, J. (2008). International Economics (4th ed.). Boston: Pearson.
InvestorWords.com. (2010). InvestorWords.com. Retrieved from http://www.investorwords.com/955/commercial_bank.html
McConnell, C. R. & Brue, S. L. (2005). Economics: Principles, problems, and policies. New York: McGraw Hill/Irwin
Reserve Bank of India. (n.d.). Annual report: economic review. Retrieved from http://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=896
University of Phoenix. (2010). University of Phoenix material – Big drive auto. Retrieved from University of Phoenix, ECO/GM561 – International Economics website.
Wikipedia. (2010). Monetary authority. Retrieved from
http://en.wikipedia.org/wiki/Monetary_authority
Wikipedia. (2010). Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Economic_history_of_Japan
Wikipedia. (2010). Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Economy_of_Japan#Macro-economic_trend
DATA MINING
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This is the process by which companies change raw data into useful information. Business technology through the use of some software allows identification of some patterns in large batches of row data which enables them to learn more about their customers. The benefit of data mining is that it assists in providing effective marketing strategies. It is dependent on effective data collection and warehousing.
Businesses such as grocery stores and supermarkets are well known for data mining as a way of identifying customer tastes and preferences. Supermarkets provide supermarket cards that allow them to offer products at subsidised prices compared to non members. Information on the card can assist in analyzing customer preference and enable the organization to monitor the buying habits of the customer.
How does data mining benefit the business in?
Predictive analytics to understand the behaviour of the customer
A business is a risk in which the investor places a bet hoping that the outcome favours the business. Success depends on having the ability to predict the future hence having the ability to prepare for the outcome (Cerrito, 2011). Data mining provides relevant and substantial amount of data from customers analyzing their trends hence the enabling the ability to predict what they will purchase next. Having information about the future or a rough estimate provides a foot path which guides in decision making. An organization is able to prepare for future changes and develop alternatives to save it from compromising situations.
Association in discovery in products sold to customers.
Large companies which include Banks, brokerage institutions, insurance, and telecommunication benefit from data mining as they are able to acquire and analyze what customers prefer and want more. However, small businesses as well are able to analyze data and enable the business to identify what products customers prefer and how they prefer it. This benefits the company in decision making. Market segmentation is also enabled whereby the organization is able to divide the market based on what products the sections consume.
To discover business intelligence from web customers.
Online interviewing and questionnaires assist the company to gain knowledge about customers and their views about respective organizations. Through posting various advertisements or questions online enables the customer to share their views on the business. Data mining groups all this information and through checking out for various patterns or information the company is able to gain more knowledge hence the ability to make intelligent and effective decisions.
Clustering to find related customer information
Clustering is a technology that involves putting similar objects together. Members of a cluster are more similar to one another sharing the same characteristics. Data mining can be viewed as a way of clustering as one of its benefits is to put a batch of raw data and rearranging it according to a specific and definite pattern. Data mining and clustering are interdependent components that are significant to a business organization. Data mining assists in exploring data which is later clustered to provide relevant information to assist in decision making. Through data mining segmentation which is a result of clustering is enabled hence providing accurate and detailed information.
Information provided by data mining is accurate depending on the quality and the effectiveness of the search engine employed (Ebecken, 1998). Information gained through data mining is only valid if the organizations systems are monitored and assessed frequently. Data mining is an approach which should be only implemented when all its merits have been approved as well as its information reliability. It is difficult to come up with clear information about the future as anything can happen then. The mere fact of knowing the future changes it. It is only possible to determine the validity of data mining information by aligning its results to expected results. They may or may not be successful. A company should not fully depend on information derived from data mining as it may or may not be successful. Data mining is mainly affected by various factors that may render it ineffective such as; lack of data standards, timelessness of updates, and human error. These three factors make data mining less effective hence it requires a lot of attention while it is being used in making decisions.
Minimal privacy concerns have been raised due to data mining.
Private information leakage may lead to cases of fraud or harm to the individual whose information has leaked. Cases of fraud have risen especially when dealing with loans due to the leakage of personal information into the internet.
Customers lack of awareness that their personal information is being fed into the organization’s database; which leads to discomfort and insecurity among consumers. Consumers feel that their privacy is violated when they find out that their own personal information is being monitored.
Dilemma in which companies risk losing their competitive edge by allowing consumers to decide whether their information should be used in making business decisions or the other way round (Aggarwal, 2012). Most people would not privacy intrusion hence the company is at a risk of losing viable information gained through data mining. Data mining involves the use of much more detailed information which many clients are not willing to let get exposed.
To a great extent this concerns are valid and every individual under the constitution is entitled to privacy as a right. Data mining is essential for the organization but on the other hand privacy is a right that should not be violated by the company at the expense of the client. If the organization decides to employ data mining it should ensure security of the client’s information and create firewalls to prevent leakage of into the internet.
The company should involve the client while deciding to dig out their personal details for analysing and decision making. It should as well provide details as to why it chooses to use data mining as a way to acquire information for decision making. Because this information has been acknowledged to be highly sensitive companies have decided to proceed with prudence only limiting themselves on what is relevant and what is not. This measure is employed for the three measures.
Consultant firms mainly deal with data mining with companies such as Timberlake Consultants Ltd, Trilogy Consulting Corporation, and Pro-Metrics Consulting Services. All three companies have gained competitive advantage through having information about customers.
References
Aggarwal, C. C. (2012). Mining text data. New York: Springer.
Ebecken, N. F. (1998). Data mining. Boston: WIT Press/Computational Mechanics Publications..Cerrito, P. B. (2011). Data mining to determine risk in medical decisions. Amsterdam : IOS press.
Computers have their applications in almost every sphere of life
Computer
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Computers have their applications in almost every sphere of life especially in the fields where the computations are required to be done in a fast speed and in instances where data is much complicated such that the human brain finds it difficult to cope up with (Thisted, 2017). The computer is composed of several software applications that aid in task performance. Each of the software is specially equipped to perform a specific task such as Microsoft word and excel.
There are various application of the computer that are regarded as basic. Word processing is an application that replaces the typewriter as a tool for writing and typing any document such as reports, articles and books (Arndt, 2016). The computer can also be used for graphics and desktop publishing and can therefore be used to create corporate logos and business graphics. Data management is also a vital application of the computer to which the computer is used to store and manage large data and information such as emails and inventories.
The computer is also equipped with other software applications that help in the implantation of more tasks (Hughes & Foley, 2014). Also, the computer can be able to act as an entertainment gadget as it can be used to play games and listen to music. The computer can also be used for educational purposes to complement the classroom through storage of educational contents, and thus can be used for distant learning.
The computer has made life simpler due to its widespread use of the various applications that it possess. There are more than a thousand computer software applications all of which are targeted to improving the efficiency of the computer. Majority of the computer applications are used in decision making through analyses, data manipulation, document handling as well as for communication and storage of data upon collection for future use.
Reference
Arndt, P. A. (2016). Computer usage for learning how to read and write in primary school. Trends in Neuroscience and Education, 5(3), 90-98.
Hughes, J. F., & Foley, J. D. (2014). Computer graphics: principles and practice. Pearson Education.
Thisted, R. A. (2017). Elements of statistical computing: Numerical computation. Routledge.