Money & Banking Flashcards
Legal tender
Official money of a country
Functions of money
- medium of exchange
- store of value
- standard of deferred payment
Bartering
Swapping of items in exchange for other items
Problems of bartering
- double coincidence of wants
- divisibility
- portability
Central bank
Monetary authority that manages economy’s money supply and banking system
Functions of central bank
- sole issuer of banknotes and coins
- gov bank
- banker bank
- lender of last resort
Commerical bank
Retail bank that provides financial services to customers
Primary function of commercial bank
- accepting deposits
- making advanced
- credit creation
Secondary function of commercial bank
- provide additional financial services
- collect and clear cheques
- provide safety deposit boxes
Disposable income
Amount of income a person can spend in goods and services after compulsory deductions
Capital expenditure
Money spent on fixed assets
Current expenditure
Money spent on goods and services in current year
Interest rate
Determine cost of borrowing and lending money
Determinants of level of spending saving borrowing
- interest rate
- confidence level
- inflation
- age
- size of household
Savings
When a person puts away a part of their current income for future spending
Borrowing
When someone takes out a loan and pays back to financial lender with interest payments
Factors that affect level of savings
- age
- attitude to savings
- confidence level
- interest rates
- income level
Reasons for borrowing
- fund education
- purchase property
- fund expensive items
- start a business
Factors that affect level of borrowing
- credit cards
- availability of funds
- store cards
- wealth
