Evolution of the Financial System

Question 1

Barter Economy

Answer 1

A barter economy is a cashless economic system in which services and goods are traded at negotiated rates.

Problem; double coincidence of wants
Solution; money

Question 2

Financial System

Answer 2

A financial system is the collection of markets and intermediaries for financial claims, individuals and institutions who issue, buy and trade the financial claims and regulators who monitor the system.

Question 3

Roles of the Financial System

Answer 3

INTERMEDIARY: Between surplus and deficit

PAYMENT MECHANISM

Question 4

Economies

Answer 4

Barter economy: Production and consumption occur within households

Monetary economy: households provide land and labour to firms. Firms provide rent, wages and good in return.

Economy with financial claims: Issue financial claims (firms), provide funds out of savings (households)