Financial Sector Flashcards
Commodity Money
Items used as money and have an intrinsic value, i.e. their value exists even when not being used as money
Fiat Money/ Paper Money
by law it must be accepted in a transaction or in settlement of debt
Qualities of Money
portable, homogenous, divisible, durable
Functions of Money
medium of exchange, unit of account, standard for deferred payments and store of value
Advantages of using a credit card
convenient and easy, safer than carrying large sums of cash, good way to build credit score
Disadvantages of using a credit card
must be repaid by specific date to avoid interest charges
Financial Sector
the complex mix of a network of markets, businesses, governments, laws, institutions and households, interacting with each other
Financial Sector importance (macroecon)
It is important due to its role in channeling flows of money outside the circular flow of income back into the circular flow. eg customer or business loans
Informal Sector
The part of the economy where economic activities are not under official control and don’t follow laws, controls and regulation systems
Benefits of Informal Sector
provides jobs, growth of entrepreneurial activity in lower income groups, contributes to material wellbeing
Disadvantages of Informal sector
low wages, no job security, don’t abide by tax and labour regulations
Informal sources for loans
friends, family, pawnbrokers, moneylenders
Why does the informal sector prosper?
ease of entry, family ownership, small scale ownership, unregulated markets, competitive markets
Role of Formal sector
makes loanable funds available from savers to spenders for consumption and investment
Financial Institutions
commercial banks, building societies, development bank, stock exchange, insurance companies, credit unions
