Global Finance (1): Lecture Part 1 History

Question 1

What is money? What must there be in order to be considered money?

Answer 1

1) Coins/banknotes
2) Written, printed, or electronic record.
Must be shared consensus/generally accepted.

Question 2

What is coin, paper, and digital money?

Answer 2

Coin: Metal
Paper: Represents value
Digital: Exchanged info

Question 3

What is commodity, token, and flat money?

Answer 3

Commodity - Gold/silver coins, shells, grain
Token - Coins/paper exchanged for gold/silver
Flat - Issued by gov’t, no relation to gold

Question 4

How did the Spanish get more money?

Answer 4

Potosi (SA) had large mountain with silver. Locals enslaved and supplied money to them

Question 5

How did the Spanish’s colonization of Potosi help them?

Answer 5

Wealth, influence, and military power.
Able to buy from Asia.

Question 6

How does Potosi still play an important role with its minerals?

Answer 6

A leading supplier of lithium for electronics.

Question 7

What was the purpose of the Bank of England?

Answer 7

In 1694, it was designed to raise money for Navy for French War.

Question 8

How did the Bank of England change in the 18th century?

Answer 8

Issued currency, managed debt, and had gold to cover all English currency.

Question 9

When and why was the US Federal Reserve formed?

Answer 9

1913 in response to federal crises to centralize control and regulate banks.

Question 10

Who was responsible for fixing the banking system?

Answer 10

JP Morgan.

Question 11

What were the three roles of the federal reserve?

Answer 11

1. Maximize employment
2. Stabilize prices
3. Moderate interest rates

Question 12

When and why was the Bank of Canada created? By who?

Answer 12

In 1935 to inflate economy after Great Depression and abandon gold standard. By Royal Commission.

Question 13

How has the Bank of Canada changed?

Answer 13

Used to be controlled privately, now by the government.

Question 14

What is a chartered bank? What are they allowed to do?

Answer 14

Operate under the government to take deposits and make loans.

Question 15

Which was the first Canadian bank?

Answer 15

BMO in 1817.

Question 16

What system of banking did Canada use that was different from the US?

Answer 16

CA: Branch banking - a small group of banks have branches across Canada.
US: Multiple banks that caused fear of centralized authority and instability

Question 17

What is the Bank Act?

Answer 17

Was re-examined every 10 years. However, Home Bank failed in 1923 which created stricter regulations.

Question 18

When was the Bank Act revised? What two things did it allow banks to do now?

Answer 18

In 1967.
1. Lifted 6% interest rate ceiling on loans
2. Banks entered mortgages

Question 19

What system exists as an insurance for Canadians who enter into agreements with banks?

Answer 19

Canadian Deposit Insurance Company covers failures - it works.