Money And Banking

Question 1

Define money

Answer 1

Any generally accepted means of payment for delivery of goods and settlement of debt

Question 2

What are the functions of money

Answer 2

Unit of account
Medium of exchange
Standard of deferred payment
Store of value

Question 3

Define financial intermediaries

Answer 3

Institutions dedicated to bringing together lenders and borrowers

Question 4

Define clearing systems

Answer 4

Set of arrangements in which debts between banks are settled

Question 5

Define financial assets

Answer 5

A piece of paper entitling a person to a stream of investment payments over a specified period

Question 6

Define bills

Answer 6

ST financial asset with no direct interest payed, with known date for repayment

Question 7

Define bonds

Answer 7

Longer term less liquid financial asset (due to uncertainty of income stream)

Question 8

Define perpetuities

Answer 8

Extreme form of bond, never repurchased by initial issuer, interest payments payed forger

Question 9

Define guilt edged securities

Answer 9

U.K. Government bonds

Question 10

Define company shares (equities)

Answer 10

Entitlement to corporate dividends (not very liquid)

Question 11

Define financial panic

Answer 11

Believing bank will be unable to pay, everyone withdraws money causing bankruptcy of bank

Question 12

Define solvency crisis

Answer 12

Institutions assets

Question 13

Define liquidity crisis

Answer 13

Institution temporarily unable to meet payment requests immediately

Question 14

Define bank rate

Answer 14

Interest rate in which commercial banks borrow from central bank

Question 15

Define LIBOR

Answer 15

Rate at which commercial banks lend to other banks

Question 16

Define interest rate spread

Answer 16

Difference between deposit and loan interest rates