Lecturers: Dr. Monica Lambon-Quayefio Dr. Nkechi S. Owoo Dr. William Bekoe College of Education School of Continuing and Distance Education 2014/2015 – 2016/2017
Session Overview • This session focuses on the financial system which is crucial in the study of macroeconomics. Specific areas to be covered in this session include; the hierarchical structure of the financial systems as well as the role of the central and commercial banks in an economy. • Goals and Objectives • At the end of the session, the student will • Be able to distinguish between central bank and commercial bank. • Be able describe the functions of commercial bank. • Be able to describe the functions of central bank. Slide 2
The Central Bank The central bank is the head of all banking institutions in in a country . Article 183 (1) of Ghana’s Constitution establishes the Bank of Ghana stating: • “The Bank of Ghana shall be the Central Bank of Ghana and shall be the only authority to issue the currency of Ghana. ” • To maintain stability in the general level of prices. • Support the general economic policy of the Government and promote economic growth and effective and efficient operation of banking and credit systems in the country, independent of instructions from the Government or any other authority. Slide 3
Structure of the financial system Bank of Ghana National Insurance National Pensions Securities and Exchange Commission Regulatory Authority Commission Insurance Stock SSNIT Companies Exchange Non-Deposit Taking Deposit Taking Institutions Occupational Institutions Insurance Brokerage Universal Finance pension Brokers Firms Banks Houses scheme Private Investment Rural/Comm Leasing Re-Insurance pension Management Banks Companies Companies scheme Micro Companies Savings & Finance Loans Com. Micro Institutions Forex Finance Institutions. Bureaux Credit Bureaux Slide 4
Functions of the Central Bank • The central bank is established to perform the following key functions: 1. Formulate and implement monetary policy aimed at achieving the objectives of the Bank; 2. Promote by monetary measures the stabilization of the value of the currency within and outside Ghana; 3. Institute measures which are likely to have a favourable effect on the balance of payments, the state of public finances and the general development of the national economy; Slide 5
F unctions of the central bank cont’d… 4. Regulate, supervise and direct the banking and credit system and ensure the smooth operation of the financial sector; 5. Promote, regulate and supervise payment and settlement systems; 6. Issue and redeem the currency notes and coins; 7. Ensure effective maintenance and management of Ghana's external financial services; Slide 6
Commercial Bank • A bank is commercial if it provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit to the public. • Unlike the central bank, the commercial bank deals directly with the public while the central bank regulates the commercial banks. Slide 7
Functions of the commercial bank 1. Taking deposits from their customers and issuing current or checking accounts to individuals and businesses 2. Extending loans to individuals and businesses. 3. Cashing cheques. 4. Facilitating money transactions such as wire transfers and cashier's checks. 5. Issuing credit cards, ATM cards, and debit cards. 6. Storing valuables, particularly in a safe deposit box. 7. Consumer & commercial financial advisory services. 8. Pension & retirement planning. Slide 8
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