NUMERCAL PROBLEMS ON MONEY AND BANKING

M1 (Narrow Money/High Powered Money) = Currency (coins and notes) with

public + Demand deposits with the Banking system + other deposits with RBI
= Currency (coins and notes) with public + Current Deposits with the Banking system

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and Demand Liabilities Portion of Savings Deposits with the Banking system +
other deposits with RBI

 M2 = M1 + Time Liabilities Portion of Savings Deposits with the Banking

System + Certificate of Deposit (CDs) issued by Banks + Term Deposits of residents

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with a contractual maturity of up to and including one year with the Banking System
(excluding CDs)
= Currency (coins and notes) with public + Current Deposits with the Banking
system and Demand Liabilities Portion of Savings Deposits with the Banking
system + other deposits with RBI + Time Liabilities Portion of Savings Deposits
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with the Banking System + Certificate of Deposit (CDs) issued by Banks + Term
Deposits of residents with a contractual maturity of up to and including one year
with the Banking System (excluding CDs)
= Currency ( coins and notes) with public + Current Deposits + Savings Deposits
+ Other deposits with RBI + Certificate of Deposit (CDs) issued by Banks + Term
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Deposits of residents with a contractual maturity of up to and including one year
with the Banking System (excluding CDs)
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 M3 (Broad Money)= M2 + Term Deposits of residents with a contractual maturity of

over one year with the Banking System + Call/Term borrowings from 'Non-
depository Financial Corporations by the Banking System
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 M4 = M3 + All deposits with post office savings banks (abolished)

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 1. Consider the following information

Notes in circulation Rs. 53050 crores

Cash Reserves of Banks with RBI Rs 133830 crores
Circulation of small coins Rs. 680 crores
Demand deposits of banks Rs. 39170 crores

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Other deposits with RBI Rs. 670 crores
Cash on hands with bank Rs. 2230 crores
Circulation of rupee coins Rs 940 crores
Circulation of coins greater than Rs 1970 crores
rupee coins

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Calculate the most appropriate measure of RBI’s money supply that could be possible.

Solution:
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M1 = (Circulaion of small coins + Circultion of rupee coins Notes in Circulation + Circulation
of coins greter than rupee coins) + Notes in circulation + Demand deposits of banks +
other deposits with RBI
= Rs. 680 crores + Rs 940 crores + Rs 1970 crores + Rs. 53050 crores + Rs. 39170 crores +
Rs. 670 crores
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2. Consider the following information:

High powered money Rs. 93050 crores
Savings Deposits with the Banking System (Time liabilities) Rs. 6700 crores
M2 Rs 280 678 crores
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Term Deposits with the Banking System excluding CDS( Rs 46056 Crores
matures within and in one year)
Term Deposits with the Banking System (maturity period Rs. 67850 crores
more than one year)
Term borrowings Rs 3400 crores
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Demand deposits with banks Rs 36912Crores

Call borrowings by banking system Rs. 5455 Crores
Saving deposits Rs. 7600 Crores
Calculate CDs , M1 and M3
Hints :
Here, M1 = High powered money

Further,
M2 = M1 + Time Liabilities Portion of Savings Deposits with the Banking System +
Certificate of Deposits + Term Deposits excluding CDs matures within and in one year

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Certificate of Deposits = M2 - M1 - Time Liabilities Portion of Savings Deposits with
the Banking System - Term Deposits excluding CDs matures within and in one year

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Broad Money (M3) = M2 + Term Deposits with the Banking System (maturity period more
than one year) + Term borrowings by the Banking System + Call borrowings by banking
system

Consider the following information:

M1
H a
Term Deposits with the Banking System b
excluding CDS( matures within and in one
year)
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Term Deposits with the Banking System c
(maturity period more than one year)
Current deposits with banks d
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Call borrowings by banking system e

Saving deposits f
Currency coins in circulation g
Other deposits with RBI h
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Currency notes in circulation i

Certificates of deposits j
Calculate M2 and M3
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Hints:
M2 = Currency coins in circulation + currency notes in circulation + Current Deposits
+ Savings Deposits + Other deposits with RBI + Certificate of Deposit (CDs) + Term
Deposits excluding CDs (matures within and in one year)
M3 = M2 + Term Deposits with maturity of over one year + Call/Term borrowings by the
Banking System

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