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Money Banking and International Trade

Semester 2 · 16 topics in 5 units

Past question papers for Money Banking and International Trade

Unit I 4 topics

  1. Money: meaning, definitions, functions, evils and the supply of money (M1 to M4)What money is, the textbook definitions, its primary, secondary and contingent functions, its role and its evils, the kinds of money, and the RBI's measures of money supply from M1 to M4 and the 1998 new aggregates, with the money multiplier worked out.8 min
  2. Value of money and index numbers: construction, problems and usesWhat the value of money means and how index numbers measure changes in it: simple and weighted indices, Laspeyres, Paasche and Fisher worked out on one set of figures, the steps in construction, the difficulties, and the uses.6 min
  3. Quantity theory of money: Fisher's cash-transactions and the Cambridge cash-balance approachFisher's equation of exchange MV + M'V' = PT, its assumptions and criticisms; the Cambridge equations of Marshall, Pigou, Robertson and Keynes; and a side-by-side comparison of the two approaches.6 min
  4. Inflation and deflation: meaning, types, causes, effects and controlDefinitions of inflation, its types by speed, cause and control, demand-pull and cost-push causes, effects on production, distribution and the balance of payments, monetary, fiscal and other measures of control, and deflation with its causes, effects and remedies.6 min

Unit II 3 topics

  1. Money market: meaning, features, components and the Indian money marketWhat a money market is and how it differs from the capital market, its features and functions, its institutional and instrument components (call money, treasury bills, commercial bills, commercial paper, certificates of deposit, repo), and the features, defects and reforms of the Indian money market.5 min
  2. Commercial banks: functions, balance sheet, and liquidity versus profitabilityThe primary, agency, general utility and modern functions of a commercial bank, the balance sheet in the Third Schedule format with a worked specimen and what each item tells us, and the conflict between liquidity and profitability with the theories that resolve it.6 min
  3. Credit creation by commercial banksHow a banking system turns primary deposits into a multiple expansion of derivative deposits: the assumptions, the single-bank and multiple-bank processes with a worked table, the credit multiplier with and without cash leakage, the limits on credit creation and the criticism of the theory.5 min

Unit III 2 topics

  1. Central bank: meaning, functions and role in economic developmentDefinitions of a central bank, its traditional functions (note issue, banker to government, bankers' bank, lender of last resort, custodian of reserves, clearing, credit control), its promotional role in a developing economy, and the RBI as illustration; the contrast with a commercial bank.5 min
  2. Methods of credit control and the objectives of monetary policyWhy credit is controlled; the quantitative methods (bank rate, open market operations, CRR and SLR, repo and the liquidity adjustment facility) and the qualitative methods (margins, ceilings, consumer credit, moral suasion, direct action); and the objectives of monetary policy, their conflicts, the Monetary Policy Committee and the contrast with fiscal policy.6 min

Unit IV 3 topics

  1. International trade: meaning, importance, and Ricardo's comparative cost theoryWhy international trade needs a separate theory, how it differs from internal trade, its merits and demerits, and the classical comparative cost theory of Ricardo with the England-Portugal example worked out, Mill's reciprocal demand, the assumptions and the criticisms.5 min
  2. Modern theory of international trade: the Heckscher-Ohlin theoryThe factor endowment theory of Eli Heckscher and Bertil Ohlin: its statement, assumptions, the price and physical definitions of factor abundance, an illustration, the factor price equalisation theorem, the Leontief paradox, criticisms, and a comparison with the classical theory.5 min
  3. Terms of trade and trade barriers: tariffs and quotasThe concepts of terms of trade (net barter, gross barter, income, single and double factoral) with a worked numerical and the factors that affect them; tariffs, their kinds and effects; quotas, their kinds and effects; and tariffs and quotas compared.6 min

Unit V 4 topics

  1. Balance of trade and balance of payments: structure, disequilibrium and its correctionBalance of trade and balance of payments distinguished, the structure of the balance of payments (current account, capital account, errors and omissions, reserves) with a worked statement, why the account always balances, the kinds and causes of disequilibrium, and the automatic and deliberate methods of correction.5 min
  2. Foreign exchange: the market, determination of the exchange rate, fixed and flexible rates, and exchange controlWhat the exchange rate and the foreign exchange market are, how the rate is determined (mint parity, purchasing power parity with a worked example, demand and supply), the case for and against fixed and flexible rates, India's move to a market-determined rate, and the objectives and methods of exchange control.7 min
  3. GATT and the WTO: history, achievements, objectives, functions, agreements (TRIPS, TRIMS) and IndiaA brief history of GATT and its eight rounds, its achievements and failures, the WTO's objectives, functions and structure, the main Uruguay Round agreements with TRIPS and TRIMS in detail, and India's gains and concerns as a member.6 min
  4. Foreign direct investment and multinational corporations: concept, nature, role and operationWhat FDI is and how it differs from portfolio investment, its forms and determinants, its role in a developing economy and its drawbacks, India's automatic and government routes; and multinational corporations, their features, modes of operation, merits, demerits and control.5 min