Da final CHaptar Flashcards
The role of money
Money allows that exchange to happen easily. As long as all parties have confidence in the currency being used
they will swap the money for products or services in the knowledge that they can use the money elsewhere.
Store of value
this can refer to any asset whose “value” can be used now or used in the future i.e. its
value can be retrieved at a later date. Money performs this function, because it allows purchasing power
to be transferred from the present to the future. This means that people can save now to fund spending
at a later date.
Unit of account
this refers to anything that allows the value of something to be expressed in an
understandable way, and in a way, that allows the value of items to be compared
The Role of importance of the financial sector of the economy
- Facilitating the exchange of products and services
this is achieved by storing money and transferring
money when required. Many people have ‘cards’ that allow transfer of money through electronic
machines or allow people to withdraw cash from cashpoints.
The Role of importance of the financial sector of the economy
- Allow saving
individuals or organisations can store their money in a financial institution (for later use)
and the financial sector keeps this money secure
The Role of importance of the financial sector of the economy
- Management of risk
the financial sector attempts to spread risk by lending to large numbers of
borrowers and absorb any ‘defaults’ through earning interest on loans
The Role of importance of the financial sector of the economy
- Offer advice
the financial sector attempts to offer advice to private individuals and organisations on the
best way of storing or investing their money
The Role of importance of the financial sector of the economy
- Monitoring borrowers
the financial sector monitors the performance of businesses and individuals to
minimise the loss of money
Main institutions in the Financial sector
Banks
– banks can exist in several forms. You will find different banks on many High Streets in the UK,
but they can also be accessed using other methods (such as telephone banking or internet banking). Banks
allow people to store their money securely and then access this money through taking out cash or
transferring money electronically (or by using cheques). Banks will offer their customers ‘overdrafts’ (the
facility of short term borrowing directly from an account), short and long-term loans and other services
such as financial advice. Banks earn most of their own finances through the interest on loans they have
given out.
Main institutions in the Financial sector
Building Societies
in the UK, building societies have become less popular than banks as the number
of services that they offer is more limited. Building societies are owned by their ‘members’ (the people
who save) and operate more to the benefit of their members than banks (who tend to be more profit
focused). The primary services offered by building societies are saving accounts and long-term loans
(especially mortgages).
Main institutions in the Financial sector
Insurance Companies
insurance companies enable people to reduce risk. Individuals or organisations
will purchase insurance against something bad happening (e.g. accidentally breaking a mobile phone, a house
being burgled, a holiday being cancelled). The cost of the insurance is much smaller than the item being
insured but the financial institutions make profits from the fact that most people do not make a claim.
