3.1 - Money and Banking

Question 1

Specialization

Answer 1

The process of concentrating on and becoming expert in a particular subject or skill

Question 2

Division of Labour

Answer 2

Is the separation of the tasks in any economic system or organisation so that participants may specialise

Question 3

Bartering

Answer 3

Exchange (goods or services) for other goods or services without using money

Question 4

Difficulties with barter (3)

Answer 4

• fixing an exchange rate
• finding someone to swap with
• trying to save an abundance of resources

Question 5

Four functions of money

Answer 5

1. medium of exchange
2. unit of account
3. store of value
4. standard of deferred payment

Question 6

medium of exchange

Answer 6

anything that is used to determine value during the exchange of goods and services (usually money)

Question 7

store of value

Answer 7

something that keeps its value over a period of time even if it is stored rather than used

Question 8

unit of account

Answer 8

money measures the value of all goods and services / Money acts as a measurement of value

Question 9

standard of deferred payment

Answer 9

money is acceptable to make purchases today that will be paid in the future

Question 10

5 factors that make good money

Answer 10

1. Acceptability
2. Durability
3. Portability
4. Divisibility
5. Scarcity

Question 11

Acceptability

Answer 11

Anything can be used as money as long as it is generally acceptable

Question 12

Durability

Answer 12

Any good used as money must be hard-wearing

Question 13

Portability

Answer 13

Money should be easy to carry around

Question 14

Divisibility

Answer 14

It must be possible to divide money of a large value into smaller values to make small purchases or to give change, without it losing value

Question 15

Scarcity

Answer 15

A good money must be limited in supply or scarce if people and firms are to value it

Question 16

Economic agents

Answer 16

Economic agents are economic decision makers

Question 17

3 economic agents

Answer 17

Individuals/households, firms and the government

Question 18

Individuals as an economic agent (3 examples)

Answer 18

buying goods and services; savings; paying rent

Question 19

Firms as an economic agent (3 examples)

Answer 19

investing; producing products; paying salaries/wages

Question 20

Government as an economic agent (3 examples)

Answer 20

infrastructure and transportation; providing public services; paying expenses

Question 21

Financial asset

Answer 21

A non-physical asset whose value is derived from a contractual claim

Question 22

Financial asset (3 examples)

Answer 22

deposits; loans; stocks

Question 23

Liquid asset

Answer 23

An asset that can be easily converted into cash, in a short amount of time

Question 24

Liquid asset (2 examples)

Answer 24

cash; savings account

Question 25

Physical asset

Answer 25

Tangible asset which is either valuable in themselves or which produce value for the owner

Question 26

Physical asset (2 examples)

Answer 26

car; house

Question 27

The market for money

Answer 27

Is made up of all those people and organisations that want money, and all the people and organisations willing and able to supply money

Question 28

Financial Institution

Answer 28

Businesses that provide financial services to individuals, firms and the Government

Question 29

Services of Financial Institutions (name 4)

Answer 29

* keeping money safe * making payments * borrowing money * making investments * exchanging currencies to buy from overseas

Question 30

Banks

Answer 30

Financial institutions that accept deposits and make loans; like any other business except they supply money; they are a financial intermediary

Question 31

3 services of (commercial) banks

Answer 31

loans; holding money in an account; deposits

Question 32

Commercial bank

Answer 32

A bank that offers services to the general public and to companies

Question 33

Central banks

Answer 33

An institution that oversees and regulates the banking system and controls the monetary base

Question 34

Demand for money (source)

Answer 34

From individuals and organisations

Question 35

Supply of money (source)

Answer 35

Mainly from the central banking system

Question 36

How do banks make money?

Answer 36

They gain the money from people holding the money in them, which they lend to others and gain profit from interest

Question 37

Functions of commercial banks (3)

Answer 37

- charging interest on loans - charging fees for the provision of other financial services - making investments

Question 38

Functions of central banks (name 5)

Answer 38

1. issues notes and coins for the nation's currency 2. manages payments to and from the Government 3. manages national debt 4. supervises the banking system, regulating the conduct of banks, holding their deposits and transferring funds between them 5. is the 'lender of the last resort' to the banking system 6. manages the nation's gold and foreign currency reserves 7. operates the government's monetary policy

Question 39

Inflation

Answer 39

a general increase in prices and fall in the purchasing value of money

Question 40

Interest rate

Answer 40

the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding

Question 41

Monetary policy

Answer 41

policies to control the supply of money, usually by manipulation of the interest rate to control demand and therefore control inflation

Question 42

Bonds

Answer 42

a loan from an investor to a borrower such as a company or government

Question 43

Stocks

Answer 43

a stock (also known as equity) is a security that represents the ownership of a fraction of a corporation

Question 44

Stock market

Answer 44

venues where buyers and sellers meet to exchange equity shares of public corporations

Question 45

Debt

Answer 45

a sum of money that is owed or due

Question 46

Loans

Answer 46

a thing that is borrowed, especially a sum of money that is expected to be paid back with interest

Question 47

Fiscal policy

Answer 47

the use of government revenue collection and expenditure to influence a country's economy

Question 48

Gold standard

Answer 48

the system by which the value of a currency was defined in terms of gold, for which the currency could be exchanged

Question 49

Open market transaction

Answer 49

activities undertaken by a Central Bank in order to regulate the money supply in the economy

Question 50

Monetary reserves

Answer 50

cash and other reserve assets such as gold held by a central bank