Money, Financial System, And Monetary Policy.

Question 1

Double coincidence of want

Answer 1

An economic phenomenon where two people have have an item the other party wants

Question 2

Intrinsic value

Answer 2

intrinsic value or fundamental value is the “true, inherent, and essential value” of an asset independent of its market value.

Question 3

Flaw of commodity money

Answer 3

It has intrinsic value, meaning that the commodity has value even if it is not used as money

Question 4

Fiat money

Answer 4

A currency without intrinsic value that has being established as money, often by government regulation

Question 5

Monetary aggregate

Answer 5

A measure of the amount of money in circulation within a country or economic sector.

Question 6

Three main functions of money

Answer 6

1. A medium of exchange
2. A unit of account, to value things and compare value
3. As a store of value

Question 7

Two main categories of monetary aggregates

Answer 7

1. Narrow money or M1
2. Broad money or M2
   and sometimes M2 +

Question 8

Narrow money or M1

Answer 8

1. Paper currency or coins with the public

2. Demand deposit (Checking) accounts.

Question 9

Demand deposit

Answer 9

is an account with a bank or other financial institutions that allows the depositor to withdraw his or her funds from the account without notice

Question 10

Broad money or M2

Answer 10

1. M1
2. Savings account
3. Time deposit accounts

Question 11

Time deposit account

Answer 11

A time deposit or term deposit is an interest-bearing bank deposit with a specified period of maturity.

Question 12

Foreign Currency Fixed Deposit (FCFD)

Answer 12

Is a time deposit issued by banks to investors who would like to keep foreign currency for future use or hedge against foreign currency fluctuation

Question 13

Demand for money

Answer 13

Is the demand for real money balances

Question 14

Real money balances

Answer 14

the real value of the amount of money held by a person, household or firm or the amount in circulation in the economy.

Question 15

Sources of demand for money

Answer 15

1. Transactions demand for money

2. Assess demand for money

Question 16

Transactions demand for money

Answer 16

This is the need for money to make purchases of goods and services

Question 17

Transactions demand for money is affected by

Answer 17

1. Interest rate, opportunity cost for holding

2. Prices and income

Question 18

Asset Demand (Da)

Answer 18

Is money kept as a store of value for later use

Question 19

Financial system

Answer 19

• responsible for linking other markets within the economy (goods markets and factor markets)
• it also links the economic agents within an economy

Question 20

[T /F] Financial systems are made up of financial intermediaries and financial markets

Answer 20

True

Question 21

Financial markets

Answer 21

Markets that trade financial instruments such as stocks, bonds, currencies. Eg, Bonds market, stock market, and forex markets.

Question 22

Financial intermediaries

Answer 22

They are institutions that provide financial services and products. Banks, mutual funds, mortgage buyers, derivative firms.

Question 23

Role of financial systems

Answer 23

1. Mobilizing and allocating resources
2. Managing risks within an economy
3. Acting as clearing houses
4. Transfer of resources across space and time

Question 24

Asset of commercial banks

Answer 24

1. Cash in vault
2. Loans
3. Securities
4. Reserves with central bank
5. Investment

Question 25

Liabilities of commercial bank

Answer 25

1. Demand deposit
2. Savings account
3. Time deposit

Question 26

Money multiplier

Answer 26

The ratio of the money supply to the monetary base (money in bank vaults and money in circulation); the money multiplier tells us how many additional dollars will be created with each addition to the monetary base.

Question 27

RRR.

Answer 27

Required Reserve Ratio. Fraction of deposits required by banks to keep as reserves

Question 28

Monetary Policy

Answer 28

Changes in money supply that influences the level of economic activity

Question 29

Body in charge of monetary policy in Ghana

Answer 29

Monetary policy committee of the bank of Ghana

Question 30

Types of monetary policy

Answer 30

1. Expansionary monetary policy

2. Contractionary monetary policy

Question 31

Expansionary monetary policy (loosening)

Answer 31

Refers to increase in money or an expansion in policy interest rate

Question 32

Policy interest rate

Answer 32

Is an interest rate that the monetary authority (central bank) sets in order to influence the evolution of the main monetary variables in the economy (consumer prices, exchange rate or credit expansion)

Question 33

[T /F] The policy interest rate determines the rest of the interest rates in the economy

Answer 33

True

Question 34

Contractionary monetary policy (tightening)

Answer 34

Reduction in money supply or an increase in policy interest rate

Question 35

How is money supplied

Answer 35

Directly by the central bank through monetary policy

Indirectly by commercial banks (and the public) through the deposit creation process.

Question 36

Some tools of monetary policy

Answer 36

1. Open operation market
2. Dicount rate policy
3. Reserve requirement policy

Question 37

Open Market Operations (OMO)

Answer 37

Refers to the sale and purchase of government securities in the open market.

Question 38

[T /F] Open market purchases are meant to increase money supply

Answer 38

True

Question 39

[T /F] Open market sales are meant to reduce money supply

Answer 39

True

Question 40

Discount rate

Answer 40

Interest rate charged when commercial bank borrow from the central banks

Question 41

[T /F] central banks raise the discount rate to signal tightening of monetary policy

Answer 41

True

Question 42

[T /F] central banks lower the discount rate to sign loosening of monetary policy

Answer 42

True

Question 43

[T /F] and increase in RRR signals a tightening of monetary policy and vice versa

Answer 43

True.

Question 44

Hedge

Answer 44

Is an investment to reduce the risk of adverse price movement in an asset.

Question 45

Fractional reserves

Answer 45

The practice of keeping a percentage of deposits on hand but loaning out the rest

Question 46

Reserve requirements

Answer 46

A legal obligation to keep a minimum amount of reserves

Question 47

Money supply

Answer 47

Is all the currency and other liquid instruments in a country’s economy on the date measured.