The Financial Process
Financial institutions deal in obligations. Strictly, these are claims/obligations, since the same transaction creates simultaneously a claim (asset) in favour of one party, and an obligation (liability) which the other has to meet. The sum total of all claims in existence at any point of time (if we could add them all together) is by definition identical with the sum total of all obligations, since the total owing is the same as the total owed, with the only difference that of being at the receiving or paying end. But we are all creditors and debtors in respect of different transactions. From this it follows that in the case of any one institution there is no exact relationship, since it will owe in some directions and be owed from others, and there is no reason why the amounts should be exactly equal. The same applies in the case of private individuals.
KeywordsCentral Bank Financial Institution Stock Exchange Commercial Bank Exchange Rate Policy
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