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CAIIB ABM Advanced Bank Management Short Notes Part 2

CAIIB ABM Advanced Bank Management Short Notes Part 2

CAIIB Exams are conducted by IIBF. CAIIB is one of many the flagship courses offered by IIBF, twice a year. It is conducted in the months of June & December every year. This course of CAIIB has a total of 3 subjects out of which 2 are compulsory and ABM or Advanced Bank Management is one of the two & the 3rd one is elective.

Advanced Bank Management has 4 modules which are further divided into several units.

CAIIB ABM - Advanced Bank Management Syllabus Priority
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PAPER MODULE
Advanced Bank Management
  1. Economic Analysis
  1. Business Mathematics
  1. Credit Management
  1. HRM in Banks

To check out the detailed syllabus of CAIIB- ABM, BFM & electives click here.

ABM SHORT NOTES:

CAIIB ABM Advanced Bank Management Short Notes Part 2

MODULE – A – ECONOMIC ANALYSIS

Unit – 3: Money Supply & Inflation

Money: It is anything that performs the following 4 functions:

  • A medium of Exchange
  • A measure/unit of value
  • A store of value over time
  • The standard for deferred payments

Read Also:- CAIIB ABM Notes – Advanced Bank Management Short Notes Part 1

Medium of Exchange: Individual goods & services and other physical assets, are “priced” in terms of money as well as are exchanged using money.

A Measure of Value: Money is used to measure & record the goods or services value.

A Store of value over time: Money can be held over a period of time and can be used to finance future payments.

The standard for Deferred Payments: Money is also used as an agreed measure of future receipts and payments in contracts.

Money supply:  The ‘stock of money in circulation in the economy at a given point of time. This is partly exogenous (i.e it is decided by the Govt & RBI) and partly endogenous.

Money supply has 4 common measures in India:

M1 = Narrow Money = Currency with Public + Demand Deposits with Banking System + ‘Other” Deposits with the RBI
M2 = M1+ Savings deposits of Post Office Savings Banks
M3 = M1+ Time Deposits with the Banking System
M4 = M3+ All Deposits with post office savings banks (Excluding NSCs)

Where,

CAIIB LATEST UPDATE:- CAIIB – INTRODUCTION OF REVISED SYLLABUS

Currency with Public = Currency in circulation – Cash held by banks.

Demand Deposits = All liabilities that are payable on demand (include current Deposits, demand liabilities portion of saving Banks Deposits, margins held Against Letter of Credit/Bank Guarantees, Balance in Overdrafts, Fixed Deposits, Cash Certificates and Cumulative or Recurring Deposits etc.)

Important Topic:- CAIIB 2022 STUDY MATERIAL 

Time Deposits = Deposits payable otherwise than on demand (include Fixed Deposits, Cash Certificates, Cumulative and Recurring Deposits, Time Liabilities portion of savings bank deposits, etc.)

The concept of Inflation: A sustained rise in the general prices level of goods & services in an economy over a period of time is known as inflation. It leads to a fall in purchasing power of money. 

Inflation occurs because of:

  • Demand-Pull inflation
  • Cost-Push Inflation

Demand-pull Inflation: A rise in general prices that is caused by increasing demand for goods and services in aggregate.

Important Topic:- CAIIB ABM MOCK TEST

Cost-Push Inflation: The type of inflation which is caused by substantial increases in the production cost of important goods & services, where no other suitable alternative is available.

The measure of Inflation: Calculation of inflation with help of Price Indexes:

Inflation = (Price Index in Current Year – Price index in Base Year) * 100

 Price index in Base Year

 

Read Also:- CAIIB ABM SYLLABUS & LATEST STUDY MATERIAL

Example: 

Nov 2020 Price Index is ‘Y’ & Nov 2019 Price Index is ‘Z’

So, inflation = (Y – Z) * 100 / Z

 

There are 4 Important Price Indexes that are used:

  • WPI – Wholesale Price Index
  • FII – Food Inflation Index
  • CPI – Consumer Price Index 
  • GDP Deflator

Wholesale Price Index: This price index shows the change in the price levels of a basket of goods at the wholesale level. Wholesale Price Index focuses on the price of goods traded between corporations at the wholesale stage, rather than goods bought by consumers i.e retail stage.

Important Topic:- WHY SHOULD YOU ATTEMPT CAIIB EXAM IN 2022?

In India, WPI (Headline Inflation i.e the raw inflation figure reported through the Consumer Price Index (CPI)) is the official inflation index used for policy decisions.

Frequency of WPI: It is announced Monthly.

The different components along with their weightage in the Wholesale Price Index (WPI):

Commodities/Major Groups/Groups/Sub-Groups/Items Weight
I. PRIMARY ARTICLES 22.62
A. Food Articles 15.26
Cereals 2.82
Paddy 1.43
Wheat 1.03
Pulses 0.64
Vegetables 1.87
Potato 0.28
Onion 0.16
Fruits 1.6
Milk 4.44
Eggs, Meat & Fish 2.4
B. Non-Food Articles 4.12
Oil Seeds 1.12
C. Minerals 0.83
D. Crude Petroleum & Natural Gas 2.41
            Crude Petroleum 1.95
II. FUEL & POWER 13.15
LPG 0.64
Petrol 1.6
HSD 3.1
III. MANUFACTURED PRODUCTS 64.23
Mf/o Food Products 9.12
Vegetable And Animal Oils and Fats 2.64
Mf/o Beverages 0.91
Mf/o Tobacco Products 0.51
Mf/o Textiles 4.88
Mf/o Wearing Apparel 0.81
Mf/o Leather and Related Products 0.54
Mf/o Wood & of Products of Wood and Cork 0.77
Mf/o Paper and Paper Products 1.11
Mf/o Chemicals and Chemical Products 6.47
Mf/o Pharmaceuticals, Medicinal Chemical & Botanical Products 1.99
Mf/o Rubber and Plastics Products 2.3
Mf/o other Non-Metallic Mineral Products 3.2
Cement, Lime and Plaster 1.64
Mf/o Basic Metals 9.65
Mild Steel – Semi-Finished Steel 1.27
Mf/o Fabricated Metal Products, Except Machinery & Equipment 3.15
GRAND TOTAL 100

 

Read Also:- CAIIB Bank Finance Management Short Notes Part 2 ( CAIIB BFM )

From April 2017 onwards, Base Year for WPI is 2011-12. 

(Source: https://www.pib.gov.in/)

Indices for the Food Group and fuel group: are announced on weekly basis.

Consumer Price Index (CPI): CPI also popularly knowns as Core Inflation shows the change in the price levels of a basket of goods & services purchased or consumed by the households. It basically is the index of ‘cost of living.

Measures of CPI are as given below:

  • The CPI for Industrial Workers (IW) has broader coverage than the others
  • The CPIs for Agricultural Labourers (AL),
  • Rural Labourers (RL)
  • And Urban Non-Manual Employees (UNME).

CPI for Industrial Workers (IW): It is used as a cost-of-living index in the organized sector. Among the 4 CPI measures, the CPI for Industrial Workers (IW) covers broader items/products than the other measures.

The difference in WPI & CPI: The two indexes differ in terms of their pattern of weighting. 

  • Food weighs more in CPIs that ranging between 46% in CPI-IW to 69% in CPI-AL, whereas it weighs only 27% in the WPI. 

Thus, CPIs are more sensitive to changes in the prices of food items.

  • In India, CPI is released by Labour Bureau, Ministry of Labour & Employment, Government of India. (Central Government has taken upon itself the task of compilation and maintenance of Consumer Price Index Numbers in pursuance of the recommendations of the Rau Court of Enquiry since 1943), whereas CPI-IW for 50 centres and All-India weighted index on-base 1960=100 was started on the basis of the Weighting Diagram drawn by conducting the Family Living Survey (FLS) in 1958-59.

Read Also:- CAIIB BFM (BANK FINANCIAL MANAGEMENT) SYLLABUS PRIORITY

GDP Deflator: It is a measure of the level of prices of all new final Goods & services that are domestically produced in an economy.

The GDP deflator is not based on a fixed basket of goods & services.

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