BANKING AFFAIRS

Detailed explanation-1: -Money Supply Measure “M1” M1 consists of the most highly liquid assets. That is, M1 includes all forms of assets that are easily exchangeable as payment for goods and services. It consists of coin and currency in circulation, traveler’s checks, demand deposits, and other checkable deposits.

Detailed explanation-2: -M1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash. However, “near money” and “near, near money, ” which fall under M2 and M3, cannot be converted to currency as quickly.

Detailed explanation-3: -M1 money supply includes those monies that are very liquid such as cash, checkable (demand) deposits, and traveler’s checks M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.

Detailed explanation-4: -Narrow money is also known as M1 and M2. Broad money means M3 and M4. The liquidity of these grades is decreasing. M1 is the most liquid and makes transactions the easiest, while M4 is the least liquid.