Question

1. Describe Monetary Policy and Fiscal Policy in detail.

2. What are the principles of bank management? Do you think these principles are the essence of the banking system?

Answer 1

1. Monetary policy is related to controlling of the money flow into the overall economy in a country and monetary flow is always maintained by Central Bank of the country.

This is a a policy which will be required in order to generate adequate demand and adequate supply in the economy which will be helpful in maintenance of an equitable and stable economy which will be promoting interest of various stakeholders in the country. Monetary policy will be embedded with many tools like interest rate, Reserve requirement and other policy changes, and these will be continuously monitoring the money flow into the economy.

Fiscal policies related to collection of taxes and expenditure of those taxes appropriately on various groups of people and fiscal policy is generally decided by the Federal Government of a country and fiscal policy is used as a secondary policy in order to help the Central Bank management of monetary policy and it is always helpful in maintaining equity principle in the overall economy by distribution of adequate income to to section of society who are devoid of basic facilities and collection of taxes from those section of societies who have high amount of income

So both fiscal policies and monetary policy are interdependent upon each other and they are trying to to fulfill each others goal.

2. Principles which a commercial banks should be adopting while Bank management as follows-

A.principle of liquidity should be managed by these banks as these banks should have appropriate liquidity in their hands.

B.principles of solvency is also to be maintained by these banks because these banks need to be solvent in order to payback the depositors money.

C.principles of profitability should be followed by commercial banks in which Commercial Banks should be aiming at achieving a higher amount of profit

D.principles of services will be relating to providing best services to the customers in order to fulfil their objective and provide optimum customer satisfaction.

E.principles of loan and investment and principles of savings are another principle which are to be followed by this commercial banks.

these principles are the essence of the banking system because banking system is based on the principle of solvency and liquidity otherwise banking companies will not be able to repay their capital and it will lead to crisis in whole economy.