Chapter 16: Money and Banking

Question 1

Money

Answer 1

An item generally acceptable as a means of payment

Question 2

Functions of money

Answer 2

• Medium of exchange
• Store of value
• Unite of account
• Standard of deferred payments

Question 3

Characteristics of money

Answer 3

• Divisible
• Durable
• Portable
• Recognisable
• Homogenous

Question 4

Roles of commercial banks

Answer 4

• Accept deposits
• Lending
• Enable customers to make payments
• Provide and change foreign currency
• Leave important documents
• Help with the administration of wills

Question 5

Aims of commercial banks

Answer 5

• Make profit by charging interest on loans
• Ensure liquidity: a bank needs to ensure it does not loan too much so it always has money available when people try to withdraw it.

Question 6

Liquidity

Answer 6

being able to turn an asset into cash quickly without a loss.

Question 7

Roles of central banks

Answer 7

Monetary policy:
- Print/create money
- Control interest rates

• Maintain stability + confidence in the financial system
• Loan to banks with liquidity problems
• Regulate banks + the financial system
• Manages national; debt
• Carries out borrowing on behalf of the government
• Holds the country’s reserves for foreign currency and gold