Money, Banking System, and Monetary Policy

Question 1

the system of using money as a means of valuation and of
exchange –evolved over time slowly.

Answer 1

Monetary standards

Question 2

Many countries today are on some kind of ______

Answer 2

floating
exchange rates.

Question 3

Few currencies are fixed in value relative to some major currency
although the _______ of many countries try to keep the value of the national
currency relatively stable.

Answer 3

monetary authorities

Question 4

_________ evolved from one that was tied to the US dollar in a
fixed way as a dollar exchange standard.

Answer 4

The Philippine monetary standard

Question 5

Upon independence, the government moved into
a managed currency, in which the value of the peso was tied to _________ determined
by the central bank.

Answer 5

exchange rates

Question 6

With the collapse of the ________, the Philippines moved
into the management of a floating exchange rate system.

Answer 6

Bretton Woods system

Question 7

________ depends on the operations of the demand and supply for Philippine currency, measured in
terms of the US dollars, in daily trading undertaken in the Philippine exchange rate markets.

Answer 7

The floating exchange rate system

Question 8

Functions of Money (4)

Answer 8

1. As a unit of account
2. As a medium of exchange
3. As a standard of deferred payments
4. As a store of value

Question 9

Kinds of money (2)

Answer 9

Commodity money
Fiat money

Question 10

money that has intrinsic value; it would be valued even if it were not used as money (e.g. gold, cigarettes)

Answer 10

Commodity money

Question 11

money without intrinsic value that is used as money because of government decree (note: fiat in latin is “let it be done”

Answer 11

Fiat money

Question 12

Motives of Holding Money

Answer 12

1. Transactions motives
2. Precautionary motives (for contingency reason)
3. Liquidity motive (speculative demand for money)
   Liquidity preference – asset holding for money

Question 13

Liquidity motive

Answer 13

(speculative demand for money)

Question 14

Liquidity preference

Answer 14

– asset holding for money

Question 15

Determinants of Money Demand or Demand for Real Money
Balances (L)

Answer 15

1. Interest rate (i)
2. Real income and wealth (Y)
3. Price index (P)
4. Tastes and preferences of the wealth-holders

Question 16

Formula for demand for real money balances (L)

Answer 16

L = f (i, Y); L α 1/i ; L α Y

Question 17

Nominal money demand versus real money demand

Answer 17

Real Money Demand (Lr) = Nominal demand for money (Ln) / Price index (P)

Question 18

Definition of Money Supply

Answer 18

The money supply is managed and regulated/controlled by the
Central Bank

Question 19

assets that have the property of liquidity

Answer 19

money

Question 20

M1 = ?

Answer 20

Cash + Checking Deposits (narrow money or transactions money supply)

Question 21

M2 = ?

Answer 21

M1 + Savings and Time deposits (broad money)

Question 22

M3 = ?

Answer 22

M2 + Other deposit substitutes

examples: debt instruments; bonds; stocks; land titles

Question 23

a law was passed creating the Central Bank of the Philippines (CBP)

Answer 23

1948

Question 24

the CBP was formally opened for business

Answer 24

1949

Question 25

the Bangko Sentral ng Pilipinas was established as the central monetary authority

Answer 25

1993

Question 26

the CBP was restructured into its successor institution, the BSP

Answer 26

1994

Question 27

exercises the powers and functions of the BSP

(e.g. conduct of monetary policy
and supervision of the financial system

Answer 27

The Monetary Board

Question 28

the chief executive officer of the BSP

Answer 28

BSP Governor

Question 29

Composition of the Monetary Board

Answer 29

7 members

Question 30

Primary objective of BSP

Answer 30

maintain price stability; promote monetary stability and the convertibility of the peso

Question 31

Characteristics and activities of the BSP and the Central Bank in general

Answer 31

a) Publicly-owned
b) Bank of currency issue and ultimate source of money (the supplier of money)
c) As government’s banker, agent and financial adviser
d) Banker’s bank
e) Lender of last resort
f) Custodian of the country’s reserves of foreign currencies
g) Regulation of monetary and financial activities (as a money manager)

Question 32

Tools used by the Central Bank to Regulate/Control Money Supply

Answer 32

1. Exercise of fiat authority to issue paper money
2. Reserve requirement ratio
3. Discount rate & Discounting bills
4. Rates of interest on government funds
5. Open market operations
6. Moral suasion

Question 33

for banks in need of additional liquidity

Answer 33

Discount rate

Question 34

buying a particular asset (e.g. a negotiable asset)
at less than its face value

Answer 34

Discounting bills

Question 35

can set or regulate the rate
of interest (e.g. overnight transaction clearing;
treasury bills)

Answer 35

Rates of interest on government funds

Question 36

the buying and selling of government securities in the financial capital market

Answer 36

Open market operations