Monetary System Flashcards
What is a monetary system?
It is a set of laws regarding a nation’s currency.
What is a monetary mechanism made of?
- the mint (the agency responsible for coining money)
- the central bank
- the commercial banks
What is a monetary standard?
It is the material representation of the value behind money
What are the types of monetary systems?
- Metallic standard (Silver - Gold)
- Bimetallic standard (Silver + Gold)
- Mixed system (gold exchange standard)
- Paper curreny standard system
What are the advantages of the paper currency system?
- it is economical
- it has a low cost of production
- easy to handle
What are the disadvantages of the paper currency system?
- danger of over-issue
- it may not be accepted everywhere (paper is paper, gold has value everywhere)
What is the par value?
The par value is the official value of a currency unit, fixed trough law
What is parity?
The parity is the ratio between 2 par values
Ex: 4.867 USD / 1 GBP
What is the exchange rate?
It is the price of one currency expressed in other currency
What are the types of exchange rates?
- fuxed exchange rate
- free-floaring exchange rate (can vary and is determined by demand and supply)
- pegged exchange rate (fixed)
- market exchange rate
How can you classify money?
- By form
- By insintric value
- By obligations assumed
Money classification by form:
- cash money (banknotes and metallic money)
- scriptural money (money deposited into a credit institution for safekeeping)
Money classification by insintric value:
- with insintric value (given by the content of the precious metal)
- fiat money
Money classification by obligations:
- convertible money
- nonconvertible money
What is money convertability?
Convertability is the ability to exchange money for some other kind of value (gold or other currencies)
