2.8

Question 1

what is money

Answer 1

money is anything that is accepted as a means of payment for a good or service

Question 2

what is a medium of exchange?

Answer 2

anything that sets the standard of value of a good or service acceptable to all parties involved in a transaction

Question 3

financial sector?

Answer 3

the financial sector is financial organisations and their products, involves the flow of (capital)

Question 4

central banks

Answer 4

(the bank of England) issue banks notes, act as a bank to commercial banks, provide national stability

Question 5

commercial banks

Answer 5

they accept deposits, keep savings safe, make payment on behalf of their customers, issue loans, provide safe deposit boxes

Question 6

the rate of interest

Answer 6

the cost of borrowing money(reward for saving)

Question 7

what is the role of banks?

Answer 7

the role of banks is to help people manage their finances.

Question 8

the importance of the financial sector

Answer 8

credit provision, liquidity provision and risk management

Question 9

provision is the action of providing something for use

Answer 9

:-)

Question 10

credit provision

Answer 10

credit provision is important, without it, the level of economic activity would be greatly limited

Question 11

liquidity provision

Answer 11

liquidity provision refers to how easy it is to turn valuables(assets) into cash

Question 12

what does the financial sector enable individuals and firms to do?

Answer 12

the financial sector enables firms and individuals to save productively and(efficient payment system)

Question 13

risk management

Answer 13

risk management is the process of identifying and controlling the threats to an organisations earnings and capital

Question 14

how do interest rates affect the level of saving

Answer 14

if the interest rates for saving increase, people would be encouraged to save

Question 15

how do interest rates affect the level of borrowing

Answer 15

if the interest rates increase, the cost for borrowing increase,
meaning the number of people willing and able to borrow decreases

Question 16

how do interest rates affect the level of investing?

Answer 16

if interest rates fall, the rate of investments would increase (inversely related).
a fall in interest rates can cause consumers to spend

Question 17

a) if a saver put 12,000 into a bank that paid 1% interest for a year, how much would they receive in the end?
b) now she wants to put £12,000 into the bank again but the interest rate is only 0.75%, how much less interest would the saver receive

Answer 17

a)£12,120 b)£30 less than the first year