Unit 4- Stocks etc

Question 1

Money is anything that is widely accepted as a _________ and therefore can be used to ___________

Answer 1

medium of exchange, buy goods or settle debts

Question 2

What does it mean to barter?

Answer 2

trading goods or services

Question 3

Is it more efficient to use money or to barter?

Answer 3

use money

Question 4

What are the functions of money?

Answer 4

• medium of exchange(accepted in exchange for goods or services)
• unit of account(allows to measure value)
• store of wealth (allows people to accumlate wealth)

Question 5

List the necessary characteristics of money:

Answer 5

• acceptable
• durable
• portable
• divisible
• standardized (easily recognized but not easily copied)
• controlled by central authority

Question 6

define commodity money

Answer 6

type of money that can also function and is useful as a commodity

Question 7

What are some examples of commodity money?

Answer 7

• whale’s teeth, beads, salt, shells

- cigarettes or cards (prison)

Question 8

Define fiat money

Answer 8

anything that is declared as money by government order

Question 9

What are some examples of fiat money?

Answer 9

euro, CDN$, US$, yen

Question 10

What are some other types of money we see?

Answer 10

credit, cryptocurrencies

Question 11

What is a fractional reserve system and why do banks use it?

Answer 11

banking system in which banks keep only a small fraction of their total deposits on reserve

Question 12

What is M1?

Answer 12

-total money supply of highly liquid money
-Includes currency in circulation (coins and
paper bank notes) plus demand deposits in the
chequing accounts of all commercial banks.

Question 13

What is M2?

Answer 13

includes all of M1 plus all notice deposits (savings
accounts on deposit for an undefined length of
time) and what are called personal term deposits,
which are on deposit for a specific term, such as six
months.

Question 14

What is M3?

Answer 14

includes M2 but adds to it term deposits of businesses (known
as certificates of deposits), which are easily convertible into
chequable deposits.

Question 15

What is the spread?

Answer 15

the difference between the
interest rate a bank charges to borrowers and the interest rate
it pays to depositors.

Question 16

What is the target reserve ratio?

Answer 16

proportion of demand deposits that a bank wants to hold in the form of cash

Question 17

What is the branch banking system?

Answer 17

• dominated by a few large banks each with many branches operating across the country
• size and geographical diversity spreads risk and minimizes possibility of bank failure

Question 18

Define assets

Answer 18

assets represent what a company owns or what others owe it

Question 19

define liabilities

Answer 19

liabilities represent what a company owes to others

Question 20

what is the money multiplier?

Answer 20

the increase in total deposits that would
occur in the whole banking system as a result of a new deposit in a
single bank.

Question 21

What is the money multiplier formula?

Answer 21

1/TRR

Question 22

Define stocks

Answer 22

a share or portion of ownership of a company

Question 23

what are the four types of companies?

Answer 23

sole proprietorship, partnership, private corporation, public corporation

Question 24

What is an IPO?

Answer 24

(initial public offering) The process of a company becoming a
public corporation and making stocks available for purchase on the
stock exchange.

Question 25

The best way to minimize risk when investing in stocks is to _________

Answer 25

diversify your portfolio