Money Flashcards
Meaning of money
Money supply is defined as anything that is generally accepted as payment for goods or services or in the repayments of debt
Money is different from
Wealth: the total collection of pieces of property that serve to store value
Income: flow of earnings per unit of time (flow concept)
Different functions of money
Medium of Exchange
Unit of account
Store of Value
Medium of exchange
Must:
- be easily standardises
- be widely accepted
- be divisible
- be easy to carry
- not deteriorate quickly
Promotes specialisation
reduces transaction costs
Unit of account
- used to measure value in an economy
- reduces transaction costs
Store of value
- used to save purchasing power over time
Other functions of money
as a means of anonymous payments
as a means of deferred payments
Money is the most liquid asset but loses value during inflation
the payments system
Payments system is the method of conducting transaction in the economy
Commodity money
valuable, easily standardised, divisible commodities
metals, cigarettes, Yap Rai stones
Representative money
money whose value arises from an underlying commodity it represents
Fiat Money
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
Cheques
an instruction to your bank to transfer money from your account
M1 Euro area
currency + overnight and similar deposits
M1 UK
currency
+ non-interest bearing demand deposits with banks
+ interest bearing demand deposits with banks
M1 US
currency
+ traveller’s cheques
+ demand deposits
+ other checkable deposits
M2 Euro area
M1
+ deposits (2-year maturity)
+ deposits redeemable in three months
M2 UK
M1
+ interest-bearing retail deposits with building societies
+ national savings ordinary accounts
M2 US
M1
+ small-denomination time deposits
+ saving deposits and MMDA
+ retail MMMF shares
M3 Euro area
M2
+ repurchase agreements
+MMF shares/units
+debt securities up to 2 years
M3 UK
M2
+ time deposits with banks
+ certificate of deposits (CD)
M4 UK
M3
+ term deposits, shares, and CDs with building societies
+ building society holdings of bank deposits and bank CDs
CBDCs
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
Money laundering and steps
process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities
- Placement
- Layering
- Integration
Placement
cash paid into bank
cash exported
cash used to buy high value goods, property or business assets
Layering
wire transfers abroad
cash deposited in overseas banking system
resale of goods or assets
Integration
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’
