Money

Question 1

Meaning of money

Answer 1

Money supply is defined as anything that is generally accepted as payment for goods or services or in the repayments of debt

Question 2

Money is different from

Answer 2

Wealth: the total collection of pieces of property that serve to store value

Income: flow of earnings per unit of time (flow concept)

Question 3

Different functions of money

Answer 3

Medium of Exchange
Unit of account
Store of Value

Question 4

Medium of exchange

Answer 4

Must:
- be easily standardises
- be widely accepted
- be divisible
- be easy to carry
- not deteriorate quickly

Promotes specialisation
reduces transaction costs

Question 5

Unit of account

Answer 5

• used to measure value in an economy
• reduces transaction costs

Question 6

Store of value

Answer 6

• used to save purchasing power over time

Question 7

Other functions of money

Answer 7

as a means of anonymous payments
as a means of deferred payments
Money is the most liquid asset but loses value during inflation

Question 8

the payments system

Answer 8

Payments system is the method of conducting transaction in the economy

Question 9

Commodity money

Answer 9

valuable, easily standardised, divisible commodities

metals, cigarettes, Yap Rai stones

Question 10

Representative money

Answer 10

money whose value arises from an underlying commodity it represents

Question 11

Fiat Money

Answer 11

paper money decreed by governments as legal tender

• money that is not convertible to gold or any other asset
• Began as IOU’s (written promise from one person or business to pay another) in China in 7th century and Europe in 13th century

Question 12

Cheques

Answer 12

an instruction to your bank to transfer money from your account

Question 13

M1 Euro area

Answer 13

currency + overnight and similar deposits

Question 14

M1 UK

Answer 14

currency
+ non-interest bearing demand deposits with banks
+ interest bearing demand deposits with banks

Question 15

M1 US

Answer 15

currency
+ traveller’s cheques
+ demand deposits
+ other checkable deposits

Question 16

M2 Euro area

Answer 16

M1
+ deposits (2-year maturity)
+ deposits redeemable in three months

Question 17

M2 UK

Answer 17

M1
+ interest-bearing retail deposits with building societies
+ national savings ordinary accounts

Question 18

M2 US

Answer 18

M1
+ small-denomination time deposits
+ saving deposits and MMDA
+ retail MMMF shares

Question 19

M3 Euro area

Answer 19

M2
+ repurchase agreements
+MMF shares/units
+debt securities up to 2 years

Question 20

M3 UK

Answer 20

M2
+ time deposits with banks
+ certificate of deposits (CD)

Question 21

M4 UK

Answer 21

M3
+ term deposits, shares, and CDs with building societies
+ building society holdings of bank deposits and bank CDs

Question 22

CBDCs

Answer 22

central bank digital currencies are an electronic form of central bank money that could be used by households and businesses to make payments

Declining use of banknote makes it even more important for BoE to consider issuing CBDC

Question 23

Money laundering and steps

Answer 23

process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities

1. Placement
2. Layering
3. Integration

Question 24

Placement

Answer 24

cash paid into bank

cash exported

cash used to buy high value goods, property or business assets

Question 25

Layering

Answer 25

wire transfers abroad

cash deposited in overseas banking system

resale of goods or assets

Question 26

Integration

Answer 26

false loan repayments or forged invoices uses as cover for laundered money

complex web of transfers makes and tracing original sources of funds virtually impossible

Income from property or legitimate business assets appears ‘clean’