IMPORTANCE OF PUBLIC EXPENDITURE

I n today dynamic world, the importantance of public expenditure increasing not only to maintain law and order but also for the growth, stability of the economy and weal fear of the state. The importance of the public expenditure is explained below.

Due to the increasing cost of new weapons, sophisticated tanks and guns, modernization of defense forces a large part of the total expenditure is needed. Since wage is under developed countries are low, a number of welfare schemes are under take by the government, such as free or subsidized health services, child welfare, welfare of the handicapped, subsidies on food and housing, special schemes for the unemployed, for scheduled castes and tribes as in Nepal etc. Population has been expanding fast in developing countries. The population theory of Malthus has been operating in such countries. A large amount has to be spent on child welfare, nutrition, social security measures, public health service, family planning programmers such as free supplies of contraceptives etc. A developing country need industrial development both in the private and public sectors cheeps credit to small-scale industries, supply of raw materials at concessional rates, expert subsidies, tax concessionals for industries in the backward regions, setting up of strategic industries in the public sector, etc has increased the importance of public expenditure. Illiteracy is rampant in developing countries so public expenditure an account of education, art, culture, scientific service and research has increased considerably.

Mega Bank To Open This Week

Mega Bank that acquired an operating licence from the Nepal Rastra Bank on Tuesday is all set to open doors to customers from this week. On Sunday, the NRB board had decided to provide the operating license to the bank.A senior official of Mega Bank said the bank is ready to start operations from this week. With Mega coming into the market, the total number of commercial banks will hit the 28 mark.Three other upcoming banks—Century, Commerze and Trust and Civil Bank—have also already received letters of intent from the central bank and they will also come to the market soon. However, another upcoming bank State Bank of Nepal, withdrew from the licencing process.Mega has Rs. 1.63 billion paid up capital and has 1,219 promoters. The new bank comes at a time when the banking system has gone through a severe liquidity crunch since the beginning of the second half of the last fiscal year. Bankers say that the situation has not improved although commercial banks saw a sudden rise of Rs. 37 billion in deposits in the last two months of the last fiscal.Mega’s chief executive officer Anil Shah told the Post that the bank could attract more deposits with its promoters representing 63 districts. “As we have a bigger capital base, we can also lend well,” he said.

KINDS OF MONEY

Kinds of money are also known as forms of money. Money can be classified into various parts.

In the days of human civilization, human society had used each and every commodity like, cattle and their bones and leathers, food grains etc as money. The commodity which used as money is called commodity money. The commodity money lakes the basic feature of good money such as uniformity, stability durability, and transportability. Money made from metal like gold, silver, copper, brass is called metallic money. This money possesses quality of good money. The metallic money is of following types.

The money made up of superior metals gold, silver etc with definite weight, value and purity is called standard or full body’s coins. The face value of such money is supposed to be equal to its intrinsic value. Its value does not fall when it is sold after melting. The money made of inferior metals like iron, copper, brass etc is called token or subsidiary money. The face value of token money is higher then the intrinsic value. Its real value disappears if it is melted. It holds nature of limited legal tender.

The money issued by the central bank or monetary authority of the country in the form of paper notes is called paper money. The paper money was first invented in china in 18^th century. Such money possesses higher face value than its intrinsic value. The paper money is widely used through the world.

Paper money that represents precious metals is known as representative paper money. They serve as a substitute of gold and silver to user. They hold cent percent reserve in the central bank or monetary authority of the country. It is difficult to issue money because all money should keep gold and silver reserve. It is also known as convertible paper money because; they can be converted into gold and silver easily in cash of need.The money issue by the central bank without cent percent gold and silver reserve is called flat money. Its face value is many time higher than the intrinsic value. It is issued by the state, so it has unlimited legal tender, but there is no legal provision to convert fiat money into gold and silver. Hence it is called non convertible paper money.

The credit institution issued by the banks and finance companies, whose acceptance not obligatory, are known as credit or bank money. Credit instrument such as cheque, credit cards, debit cards, promissory notes, bills of exchange, draft, latter of credit etc are the example of credit money. It is also known as optional or non legal tender money.

PUBLIC FINANCE

Public finance is a study of income and expenditure or receipt and payment of government. It deals the income raised through revenue and expenditure spend on the activities of the community and the terms ‘finance’ is money resource i.e. coins. But public is collected name for individual within an administrative territory and finance. On the other hand, it refers to income and expenditure. Thus public finance in this manner can be said the science of the income and expenditure of the government.

Different economists have defined public finance differently. Some of the definitions are given below.

According to prof. Dalton “public finance is one of those subjects that lie on the border lie between economics and politics. It is concerned with income and expenditure of public authorities and with the mutual adjustment of one another. The principal of public finance are the general principles, which may be laid down with regard to these matters.

According to Adam Smith “public finance is an investigation into the nature and principles of the state revenue and expenditure”

To sum up, public finance is the subject, which studies the income and expenditure of the government. In simpler manner, public finance embodies the study of collection of revenue and expenditure in the public interest for the welfare of the country.

VALUE OF MONEY

The value of money indicates purchasing power of money. It refers to the quality of goods and services that a unit of money can purchase unit of time. The purchasing power of money depends on the level of price of goods and services. Thus, it refers the buying and purchasing power of money. There is inverse relationship between the value of money and the price level. If price is high purchasing power of money is low. Similarly if price is low the purchasing power is high. There is positive relationship between value of money and its purchasing power. Higher the value of money, lower will be the purchasing power. Similarly, lower the value of money, lower will be the purchasing power. The relationship between the value of money and its purchasing power is exactly proportional. Thus, in consumption, the value of money refers to the money to command or buy the goods and services.

According to Benham, “The value of money means the purchasing power of a unit of currency in general.”

In the word of Crowther, “The value of money is that what it mill buy”

Fisher define the value of money a “The purchasing power of money is the reciprocal of the level of prices”

TYPES OF BANKS

Althow we broadly defined bank as an institution that accepts deposits and provides lones of various kinds, this defination does not capture the types and nature of various service and products that bank performs. It, therefore, should be make cliear what type of functions that a banks performs, what are the services and products that it can provide to the custumer and to what extent and area it can make financial teansactions. Based on the nature of the services, capital based and coverage of the area banks can be classified into following majour types.

CENTRAL BANK


The central bank is an apex institution to regulate, supervise and facilatate the overall banking system of the country. It servs as the bankers' bank and economic as well as financial advisor to the government. Every country has its own central bank like Nepal Rastra Bank, Reserve Bank of India, Federal Reserve Bank (USA) Bank of Japan etc. It is established for achiving some predetermine objectives such as maintaning price stability, promoting higher economic groth and emploment,exchange rate stability etc.the main objective of the central bank is to servs as the nation as an apes institution to manage the overall banking system rather than earning profits.


COMMERCIAL BANK


The history of banking evolved through the establishment of commercial bank which is the oldest form of bank. It is basically a profit making financial institution that accept deposits and provides lones to customers. Thus, commercial bank is mainly motivated by the profits. It can earn through the difference between the interest on loans and deposits and various customers services. in principle, commercial bank is established for providing short term loans to the bussenessmen. However, the mordern commercial banks performs a number of functions such as consumer leading, industrial financing,foreign exchange operations, ans various others customers services that go beyond the supply of short term loans.

DEVELOPMENT BANK


Developments banks are the specialised financial institutions that are set up to provide loans for development purpose in the various sector like ageiculture, industry,service etc. The development bank also performs almost the developmental activities and have relatively limited scope of their banking activities than commercial banks.

INDUSTRIAL BANK


Industrial bank are those specialized financial institutions which are established for the development of industrial sectors through various way such as by providing loans, directly investing for establishing or modernizing some partivular industry, dealing with the sale and purchase of the share bonus or debentures of industrial establishment, etc.

FINANCIAL COMPANY


Financial companies are those institutions particularly engagde in small and short term consumer financing. The finance companies can accept deposit and extend short term consumers loans with limited amount specified by the central bank directives. The financial companies are small in size in term of the capital and assets so that they can be estabilished in the regional level where other banking institutions are not avaliable.

MICRO CREDIT INSTITUTION


Micro credit bank is a financial institution which is set up with the specific objective of providing financial services in the rural area particularly focusing on the finalncially backward group, sector ans area of the economy. The concept of micro credit institution is developed by prof. Mohamad Yuns of Bangladesh who received the Novel Prize in 2006 for his outstanding contribution in the society through his model of grameen Bikash Bank.

POSTAL SAVING BANK


In order to accumulate the scattered savings from small depositers the postal saving banks operate their services from the branch of post offices. These saving banks collect deposits from the small depositers who do not have easy access to other banking institutions in rural areas. However, the postal saving banks in development countries perform almost all banking transaction like commercial banks.

ROLE/IMPORTANCE OF MONEY

Money is the lubricant of an economy. Without money economic activities such as production, consumption, capita formation etc can not be performed. This shows that money is the life blood of an economy. Due to its quality of portability, divisibility, stability, acceptability and durability, it is regarded as the wheel of the economics’ system. Following are the role of money: The satisfactions can be obtained by consumption of various goods and services, which is measured by the help of money. Due to its purchasing power, people can satisfy their wants by purchasing different commodities with money. Money is used in factors pricing. It is the phenomena of determining the price of factors of production, such as wage, salary, for labor, interest for capital, profit for origination and rent for land. Any producer can maximize the profit by using money.
In production entrepreneur has to compensate all factors of production for their contribution. Rent to land, wage to laborers, interest to capital, profit to enterprises has to pay and without money we can’t assess the exact compensation of factors of production.
Money facilitates the environment of credit business in modern economy. It has made easier both lending and borrowing. Money is also used in standard of different payment. National income of the country is calculated in terms of money which shows the standard of living of people. Without money measurement of national income can not be done because national income is money value of total outlay of a country within a year. Capital is scare and important factors of production. Money provides mobility to capital. Capital formulation is possible when there is an exact unit to measure the amount of the capita in the country. The process of the capital formulation in the modern economy is almost impossible without money.Money plays a signification role in social economic development. It is an effective means of mobilizing factors of production. Money facilities the development of social and physical infrastructure such as road, electricity, communication, school, hospital etc.