2.8 the role of money Flashcards
what is money
anything that is accepted as a means of payment for goods and services.
cheques debit cards and credit cards are not money because they allow money to be transferred between buyers and sellers
what is a debit card
transfers money from your current account to the seller
what is a credit card
allows you to buy goods and services whether or not you have the money in your account. if you cannot pay for this short term loan in 30 days you will be charged interest on it
what is a medium of exchange
anything that sets the standard of value of goods and services to all parties in a transaction
money is the most common
what is the financial sector
consists of financial organisations and involves the flow of capital
it helps market to function
what are the advantages of the financial sector
- provision of credit in terms of credit and debit cards for customers do not have to rely on having cash
- mortages to buy properties
- allow customers to save for more expensive goods such as musical instruments
what are the disadvantages of the financial sector
- businesses are charged for consumer using credit cards, so may be reluctant to accept them
- consumers who wish to pay off credit cards each month may not risk greater expenditure
- interest rates can vary
what is the role of the central bank
issues bank notes
control monetary policy by setting the bank rate
provide financial stability
what is the role of commercial banks
take deposits from customers and turns them into assets
generally charge interest rates higher than bank rates
what is the role of building societies
mutual institutions
their members own them
provide saving products and mortgages for their members
different to banks
why is credit provision (card) important
the economy would be limited
credit card increase consumption
producers can borrow money enabling them to grow without have to save money firstly
why is liquidity provision important
refers to how quickly assets can be turned into cash.
interest on saving equation
amount saved x interest rate / 100
interest rate on borrowing
amount borrowed x interest rate / 100
