According TO Oyindo (1991) monetary policy could
be defined as this combination of measures designed to regulative supply of money to an economy.
Specially, it is designed to regulate the availability cost and direction of credit in order to attain stated national economic objectives.
Monetary policy usually involves the expansion or contraction of money supply. This manipulation of interest rates to make borrowing easier and cheaper of more difficult and dealer depending on preventing economic condition and channeling of fund to growth sectors for interest out put monetary policy that regulates the level of money or liquidity in this economy in over to activities some desired policy objectives.
It ensures that the supply of money and cost of credit to an economy is adequate to support desirable and sustainable growth without generating inflecting pressures that could lend to undue depreciation in the value of local currency. It consists of instruments and tools which is used by government to regulate the supply of money in economy in other to influence this activities of economy such tools include. Open market operation preserve regulate, cash ratio moral suasion etc
According to Lord Jan Keymes (1936) fiscal policy refers to a manipulative instrument in the banks of government deigned to achieve that mean-economic objectives of the economy. It deals with decorate exercise of the movement’s power to tax and spend for the purpose of bring the nations output and employment to certain desire level the effect of useful instrument monetary and fiscal policies in commercial banks in this subject matter of this project works.
The subject of money is as contemporary as the daily newspaper and as old as the history of civilized man the bible says: the love of money is the root of all this (2tim 6: 10) although an exclusive love of money may not be desirables the use of money has always seemed necessary, politician debuted though exaction, endlessly although most people know only that far as they are concerned they never have enough money.
It is an indisputable fact that money being a desired and useful servant of man, at times misbehaved sometimes a country has so much money that the money free of everything keeps increasing in an inflationary special. Then the value of money tomorrow in terms of its purchasing power will be less than today on this hands, some times the country seems to have a little money that no one or hardly enjoy has enough to spend when money ins in two short supply, as in the great depression of the 1930’2 when of factors do not turn to as rapid as they can heard lines of unemployed workers forms money can be a great blessing or a great course.
Money, of course does not come out of this air, some our has to create it. It is here that this commercial banking system carries into the picture. Commercial banks are certainly heavily places to store money, in form of banks deposits or to borrow money. More importantly, they have the unique role in every country’s economy, including Nigeria, of being able to create money, quite, still, this money is not corrected by banks out of nothing. E ach bank can loan only funds which it actually has. Nevertheless, when a number of banks are all making loans at this same times or buying investments, even money is being created.
Bank cannot, however, makes loans and investment and thereby create money in an unlimited fashion, the ability of the banking system to act to the money supply depends you this reserve requirement establishments by the monetary and fiscal policies. Banks are not require to have hundred percent (100%) behind that exposit. Instead they have a factorable reserve requirement, which allows then to add to their earning assets and thereby increase their deposit liabilities. One of the deposit liabilities of the commercial banks their demand deposit, is a part of the money supply.
Efficient management of money stock and their related part growth of any economy. The earlier mentioned accountancy, fiscal and either banking policies rely on the techniques of financial programming which seek to ensure some consistence among the economic sectors. The monetary attempt to established on optimum quality of money consistent attempt to estimate and optimum quality of money consistent with the target for GDP growth, inflation rate and external reserves. Using the computer optimal money supply, the economic absorptive domestic credit is denied, thereby permitting growth targets to be determined for some of the intermediate policy variable of money supply and aggregate.
Digestive credit. The permissible segregate domestic in them allocated between theis governed and private sectors. The portion taken up by the government is determine by the size of the budget deceit to be financed by the banking system comprising the CBN and Commercials and Merchant banks. This balances is calculated to the private sector this process has allocated the CBN to influence credit growth either directly under the regime of credit ceilings or indirectly through market based instruments, subject to the size foot fiscal defect financed by banking system.
In the era of direct monetary control, the major instruments of policy comprised credit earning imposed on banks administratively fixed interest rates and exchange rate, mandatory on the effectiveness of monetary policy and are financial sector became consommé, the phased movement to the direct approach was initiated in 1992 under which greater reliance is placed are the use of market based on instruments such as reserve requirements, the discount rate of own market operations, to effectively operate the new system indirect monetary control required a deregulation, the target of deregulation usually interest rate, the market for government debt instruments and exchange rates.
Other measures taken to strengthen the financial sector to enhance monetary and fiscal policies include during excess liquidity in the system.
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