3.1 Money And Finance Flashcards
Characteristics of money. Explain.
1) acceptable
2) durable
3) portable
4) divisible
5) scarce
Functions of money
1) A widely accepted medium of exchange
• exchange is simple of everyone accepts money in payment for things they provide. A labour get money as wages and uses it to buy other goods and services.
2) A reliable measure of value
• money provides a single measure that can be used for all goods and services. This helps people differentiate the worth between different goods and services.
3) A good store of value
• many goods and services are difficult to save as they are too big and perish easily. Money provides a good store of value unless there is rapid price inflation. A given amount of money can buy less and less as time goes by if price rises.
4) A form of deferred payment
• because money can be saved and will hold its value, firms allow their customers to pay for their goods and services in installments.
Where do banks earn their revenue from?
1) interest rate charges on loans
2) fees on service
• foreign exchange currencies and auto cash machines
3) profit earned from investments on other companies made on the stock market
What is interest rate?
The price of borrowing or saving money.
What is a commercial bank?
A bank that provides financial services. Located in many modern shopping centers or easily accessed via Internet.
What is a credit union?
Co-operative societies, owned by members. Non-profit making, originally set up to help individuals and small firms with low income to borrow money. Now they provide financial services similar to commercial banks.
What is a mutual society?
A saving and loaning association, owned and run on behalf of their members or customers. Traditionally specialized in long term loans called mortgages to buy property. Now provide similar financial services to commercial banks.
What is an investment bank?
Specialize in helping large companies raise finance from the stock market.
What is an Islamic bank?
They follow the Islam sharia’a law where it forbids interest rate charges and payments. Instead, they charge fees and share profits.
What is a central bank?
They maintain the stability of the nation’s currency and supply money on behalf of the government.
Functions of central bank.
1) issue new notes and coins for the nation’s currency
2) manage payments going in and out of governments accounts
3) stabilizing the value of the nation’s currency on the foreign exchange market
4) managing the stock of government borrowing ( gov’t debt)
5) supervising the banking system, regulating the conduct of banks, holding their deposits and transferring funds between them
6) “lender of last resort”, lends money to banks to prevent them from going bankrupt if they run short of money
7) operate the governments monetary policy
What is a stock market?
A global market for the selling and buying of new and second-hand stocks and shares. Where joint-stock companies and government can issue stocks and shares to raise finance.
What is a stock exchange?
Enables individuals, companies and government to buy and sell their stocks and shares on the stock market.
Type of stocks/shares bought and sold on the stock market.
1) preferred stocks/preference shares
• shareholders of preference shares receive dividend before all other shareholders
• constant dividend
• no voting
• if company does not have enough money to pay, they will keep accumulating
2) common stocks/ordinary shares
• shareholders of ordinary shares receive dividend after preference shareholders
• no constant dividend
• voting (1 vote per share)
3) government stock/gov’t share
• loan stocks issued by governments to borrow money over a fixed term. They are repaid with a fixed interest rate, at the end of a term
• some terms are 25 years
