Money and Finance Flashcards
Describe the problems of being self-sufficient, and how specialisation overcomes these problems.
- time-consuming to produce everything
- people have different skills
- specialisation increases production
Define barter, and describe how the barter system worked.
The exchange of goods and services without using money.
This is when people swapped the goods and services they produced in surplus for other products they could not produce as well themselves.
What are the 3 problems of bartering?
- Fixing a rate of exchange
- Finding someone to swap with (there needs to be a double coincidence of wants)
- Trying to save
Define
money
A commodity that overcomes the problems of barter by being an accepted item to be exchanged for labour and all other goods and services.
Money encourages specialisation by making trade easier.
What are the 4 functions of money?
Money is:
- a medium of exchange
- a means of deferred payment
- a store of value
- a measure of value
What are the 5 characteristics of good money?
- Acceptability
- Scarcity
- Durability
- Portability
- Divisibility
What is the money supply of an economy?
The money supply is the total value of notes, coins and bank deposits in an economy.
Define
financial assets
Non-physical assets, such as bank deposits, shares, bonds and other financial claims that have value.
Define
liquid assets
Financial assets that are ‘near money’, such as bank deposits, which can be converted into cash easily and quickly.
Back deposits held at banks and other financial institutions are most easily converted into cash, usually for little or no cost. Bank deposits have therefore become the most important form of money in most modern economies.
Define
physical assets
Non-financial assets or physical products, such as commercial and residential properties, that have value and therefore contribute to wealth.
What are the three main reasons why some assets are nearer money than others?
- Some assets fulfill the functions of money better than others
- Some assets can be converted into cash more quickly than others
- Some assets retain their value on conversion to cash better than others
Define
velocity of circulation
The number of times the fixed amount of notes and coins in an economy are exchanged between different people and firms on average over a given period of time.
Define
money market
The market for short-term loans and liquid financial assets, such as bank deposits, that can be converted easily to cash. The market consists of all those people or organizations willing and able to supply or loan money and all those willing and able to borrow it.
Define
financial intermediary
An organisation, such as a bank, that brings together customers who want to save money and others who wish to borrow it.
What are the three ways in which banks can earn revenue?
- Charging interest on loans (the interest rate represents the cost of borrowing money)
- Charging fees for the provision of other financial services
- Making investments
What other financial services may a bank charge its customers for?
- withdrawals from automated cash machines
- exchanging and transferring foreign currencies
- buying and selling shares in public limited companies
- providing life, property and travel insurance
- issuing debit and credit cards
- storing valuables (safety deposit boxes)
- organising customer payments in the form of cheques or electronic transfers to the bank accounts of other people, businesses or government authorities
- telephone and Internet banking services
List 5 different types of bank
- Commercial banks
- Credit unions
- Mutual societies
- Investment banks
- Islamic banks
- Central banks
What is a commercial bank, and what services do they provide?
A type of bank with individual and business customers that has retail branches in many towns and cities.
Services include:
- accepting deposits of money and savings
- helping customers make and receive payments
- making personal and commercial loans
- buying and selling shares for customers
- providing insurance
- operating pension funds
- providing financial and tax planning advice
- exchanging foreign currencies
List three different types of account
- deposit account
- current account or checking account
- savings account
Describe four different types of loan
- Overdraft: short-term loan with interest
- Personal loan: repaid with interest over a fixed period
- Commercial loan: loan to business for operating costs and purchase of materials and machinery; repayable with interest over fixed period of time
- Mortgage: long-term loan used to buy property
Describe three methods of payment
- Cash: notes and coins; easiest method for payments in person
- Direct debit: bank makes regular payments on your behalf
- Cheque: a written promise to pay cash to, or transfer money into the account of, another person or organisation
What is the difference between a debit card and a credit card?
When using a debit card, money is instantaneously transferred from the user’s account to make a payment. A credit card provides a short-term loan, and the user has up to a month or longer before interest is payable on the loan.
What is a central bank, and what functions does it perform?
The main bank in an economy, responsible for managing the stability of its national currency and money supply, and for regulating its banking system.
Functions include:
- Issuing notes and coins for the nation’s currency
- Managing payments to and from the government
- Managing the national debt
- Supervising the banking system, regulating the conduct of banks, holding their deposits and transferring funds between them
- ‘Lender of the last resort’
- Managing the nation’s gold and foreign currency reserves
- Operating the government’s monetary policy
What are the two main ways of financing economic activity?
- Taking loans from banks
- Selling stock on the stock market
Define
stock
Stock is the name used to describe money raised by a joint stock company or corporation, or a government.
Companies issue and sell stocks in the form of shares.
Define
joint-stock company
A business organization owned jointly by its shareholders. Also known as a limited company.
Define
shareholder
A person or organization that owns one or more shares in a joint-stock company.
Define
market capitalisation
The total value of a company measured by multiplying the number of shares it has issued by their current market price per share.
Define
dividend
A portion of the profit of a company that is paid to its shareholders for each share they own.
Define
permanent capital
Money raised from the sale of shares by a company that it will never need to repay.
The main advantage of raising capital through selling shares is that the money raised is permanent capital.
Define
flotation
The first issue and sale of shares in a newly created public limited company through a stock exchange.
Decribe three types of stock
- Preferred stock/preferred shares
- issued by joint-stock companies
- given preference in the payment of dividends
- not usually allowed to vote in AGMs
- Common stock/ordinary shares
- receive dividend from remaining proftis after preference shareholders have been paid
- one vote per share
- majority shareholder can determine company policy
- Government stock or securities/government bonds
- loan stocks issued by a government to borrow money over a fixed period of time
- repaid with fixed rate of interest on ‘maturity’
What is a stock exchange and what are its functions?
A stock exchange, or bourse, is a business organization that enables individuals, companies and governments to buy and sell loan stocks and company shares on the global stock market.
- it brings together buyers and sellers of new and second-hand stocks
- it provides up to the minute information on the market prices of different stocks and quantities traded
- it supervises the conduct of firm of brokers that buy and sell shares on behalf of investors
Define
stock market
The global market for the buying and selling of new and second-hand government stocks and company shares.
What is a broker and what is a broker’s role in a stock exchange?
A share dealer/share dealing firm, able to buy and sell shares on a stock exchange.
- Stock exchanges are not open to the general public, so they must contact a broker or go to a major bank to buy or sell shares.
- Brokers will buy and sell shares for a fee known as commission
What are market makers?
Market makers are special brokers or dealers who create the market in shares by always being willing to buy and sell shares with other brokers or dealers.
Market makers make their profit by selling the shares they hold at a higher price than they paid for them.
On the stock market, what is speculation?
Attempting to make money from buying and selling shares in the hope thei prices will change.
On the stock market, what are bulls and when is a stock market described as bullish?
Bulls are the name given to stock market speculators who buy shares in the hope their price will rise quickly so they can sell them for a profit.
A bullish market refers to a situation in which the average prices of shares on the stock market is rising.
On the stock market, what are bears and when is the stock market described as a bear market?
Bears are stock market speculators who will buy shares in the hope they will quickly fall in value so they can buy them back at a lower price.
A bear market refers to a situation in which the average prices of shares on the stock market is falling.
On the stock market, what are stags?
Stags are stock market speculators who apply for new issues of shares in anticipation of a rise in price when stock market trading commences in order to make a quick profit on resale.
