Money and Banking Flashcards
What is the development of people and economies closely related to?
the use of money, the institutions that deal with money and the activities that relate to money
What is money often described as?
Money is often described as a great liberator of people
Why is money described as a great liberator of people?
As soon as people are able to exchange their labour and the items they produced by their labour for money, they are no longer tied to the bondage of a self sufficient existence
What are the functions of money?
Money is a medium of exchange
Money is a store of value
Money is a unit of account
Money is a standard of deferred payment
How is money a medium of exchange?
- workers exchange their labour for money
- shops exchange goods for money
- Money eliminated the problems of barter trade
How does the separation of production and consumption have important implications on the economy?
- It allows workers to do the job they are skilled at
- Producers can produce the type of goods of their choice
- Traders can engage in trade of their choice
- Money allows specialisation
What are the advantages of specialisation?
- Increase in output/productivity
- Products of high quality
- High salary/wage to the worker
- Minimum wastage
How is money a store of value?
- Money is a generally accepted legal tender
- Therefore people such as individuals, businesses and enterprises tend to hold money
- When money is held it serves as a store of value until it is used to pay for goods and services
- Used to store wealth
- Value of money must not change with time
How is money a unit of account?
- Goods and services for sale have a price expressed in terms of the standard money
- When transactions are recorded, the bookkeeping system of the country uses money as a unit of account
What are the advantages of using money as a unit of account?
Trade is simplified
Relative values of goods and services are expressed
How is money a standard of deferred payment?
Transactions are often arranged so that goods and services that are bought now are paid for later
What would happen if the use of deferred payments stop?
-A large part of the economy would come to a halt and many business enterprises would not be in the position to sell their goods
What forms of modern money are there?
Fiat money and deposit money
What are the types of modern money?
Coins
-Made from metal alloys, worth less than face value
Bank notes
-Issued by central banks, legal tender
Deposit money
-Created when someone deposits cash or cheques at a bank in a cheque account or other kind of demand deposit
What are money associated instruments?
Instruments that are used to pay or transfer money are often taken to be money themselves
What forms of money associated instruments are there?
Cheques Cards Credit cards Debit cards Internet banking Postal orders and money orders
How do cheques work?
a cheque authorises the bank to pay a sum of money in cash or to pay a sum of money to a person
What are cards?
Consumer cards are issued by consumer organisations and retail businesses and give consumers access to credit
Bank transaction cards are only used to withdraw/deposit cash or cheques at ATMs, to transfer deposit money or pay accounts electronically
What are credit cards?
- They are issued to banks’ creditworthy clients on application
- Holders use these cards to purchase goods and services
- Banks pay for these with deposit money
What are debit cards?
- Issued by banks to clients who maintain cash balances on their accounts
- These clients prefer not to use loans
What is internet banking?
- Clients can arrange access to their own accounts on the bank’s website
- They can access their accounts and transfer deposit money balances from one account to the other if they have the person’s banking details
What are postal orders and money orders?
- These can be bought at any branch of the post office
- They can then be used to pay for goods and services
- The receiver can exchange them in the bank/post office for cash
In which domain does the monetary system operate?
The circular flow model
What are the 4 elements of the monetary system?
Money
Financial Intermediaries
Credit Instruments
Financial Market
