BANKING AFFAIRS

Detailed explanation-1: -The Relationship between M1 and M2 Money. M1 and M2 money have several definitions, ranging from narrow to broad. M1 = coins and currency in circulation + checkable (demand) deposit + traveler’s checks. M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.

Detailed explanation-2: -MO is included in both M1 and M2. MO is the total amount of paper money and coins in circulation, plus the current amount of central bank reserves. M1 is the most frequently reported headline number. It is MO plus money held in regular savings accounts and in travelers’ checks.

Detailed explanation-3: -M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers’ checks) plus savings deposits (including money market deposit accounts), small time deposits under $100, 000, and shares in retail money market mutual funds.

Detailed explanation-4: -Currency in circulation represents part of the overall money supply, with a portion of the overall supply being stored in checking and savings accounts.