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4 views2 pages

Document

Uploaded by

Karrina Daure
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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TOPIC 9

The text discusses the roles and functions of money markets and commercial
banks, focusing on their importance in financial systems, particularly in
Papua New Guinea (PNG). Money markets facilitate short-term borrowing and
lending, ensuring liquidity and providing low-risk investment options through
instruments like Treasury Bills, Certificates of Deposit, and Commercial Paper.
Central banks, such as the Bank of Papua New Guinea, regulate these
markets to control inflation and stabilize the economy. Commercial banks
serve as intermediaries, offering deposit accounts, loans, and payment
systems, while promoting financial inclusion and economic growth. In PNG,
banks face unique challenges such as geographic barriers and low financial
literacy but play a critical role in supporting local enterprises and
infrastructure projects.

Key Insights

Money markets are essential for liquidity management, allowing for efficient
short-term borrowing and lending.

Central banks influence money markets through monetary policy, impacting


interest rates and inflation control.

Commercial banks act as financial intermediaries, fostering economic growth


by connecting savers with borrowers.

Financial inclusion in PNG is a significant challenge, necessitating innovative


banking solutions like mobile banking.

The Bank of Papua New Guinea plays a crucial role in maintaining monetary
stability and regulating the financial system.

Frequently Asked Questions

What are the primary instruments traded in money markets?

Money markets primarily trade instruments like Treasury Bills, Certificates of


Deposit, Commercial Paper, Repurchase Agreements, and Bankers’
Acceptances, which are used for short-term funding needs.
How do commercial banks create credit in the economy?

Commercial banks create credit by lending out a portion of their deposits,


which increases the money supply and stimulates economic activity.

What challenges do commercial banks face in Papua New Guinea?

Commercial banks in PNG face challenges such as geographic barriers, low


financial literacy, and a complex regulatory environment, which impacts their
ability to reach rural populations.

What is the role of the Bank of Papua New Guinea?

The Bank of Papua New Guinea is responsible for formulating monetary


policy, issuing currency, supervising financial institutions, managing foreign
exchange reserves, and promoting financial inclusion.

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