Chapter 11

Question 1

What is the value of money?

Answer 1

1. Determining exchange value (when prices rise, money losses its value)
2. Quantity Theory of money ( More money that is printed means the less valuable the money is)
3. Velocity of circulation of money ( The rate at which money circulates
4. Stabilizing value

Question 2

What are the functions of money?

Answer 2

1. Medium of exchange
2. Store of value (eg savings etc)
3. Unit of account ( The price of goods expressed in rands)
4. Standard of deffered payments (eg. monthly installments)

Question 3

Name all three money associated instruments.

Answer 3

1. Cards (debit, credit, internet banking)
2. Physical money (cash, coins)
3. Non-conventional (cryptocurrency)

Question 4

What is legal tender?

Answer 4

Medium of payment, that by law, must be accepted

Question 5

What is fiat money?

Answer 5

Money not backed by any physical asset or commodity, the value comes from governement order

Question 6

What are the forms of money?

Answer 6

• M1: Coins and notes (Primary money)
• M2: M1 + short term deposits (eg. demand deposits, bank deposits, EFT’s etc) (Secondary money)
• M3: M2 + long term deposits (eg. Notice accounts) (Quasi money)

Question 7

Define inflation and state the ideal inflation rate.

Answer 7

Inflation is defined as a continious increase in the general price level over a specific period and the inflation target is between 3% and 6%

Question 8

Give four reasons for inflation.

Answer 8

• Increase in oil prices
• High salary increases
• increase in consumption
• Increase in money supply

Question 9

What are the three measures to stabilize inflation?

Answer 9

• Setting minimum cash reserves
• Increasing/ decreasing interest rates
• Setting inflation targets

Question 10

Give three scenarios when interest rates rise

Answer 10

• They rise in times of inflation
• When there is a greater demand for credit
• when reserve requirements increase

Question 11

As of July 2024 what is the
1. Repo rate
2. Prime interest rate
3. Inflation rate

Answer 11

1. 8.25%
2. 11.75%
3. 5.1%

Question 12

What is a stokvel?

Answer 12

A stokvel is a member-owned association in which a group of people enter into an agreement to contribute a certain amount of money , either monthly, fortnightly, or weekly

Question 13

What is the problem with micro lending

Answer 13

• Lender abuse
• Repayment of debt
• Interest rates too high

Question 14

What is the role of the SARB and when was it founded?

Answer 14

The SARB controls the monetary and banking systems of South Africa. It’s primary goal is to protect the value of the Rand. Founded in 1921

Question 15

What are the functions of the SARB?

Answer 15

1. Bank of issue
   - South African Bank Note Company and South African Mint Company
2. Custodian of gold and foreign reserves
   - The bank holds the countrys gold and foreign exchange reserves to ensure enough reserves for imports

3.Governments banker

4. Banker of other banks
   - All banks keep accounts with SARB
   - Commercial banks cash reserves are held at the SARB
5. Supervision
   - The registrar of banks

Question 16

What is the aim of the monetary policy?

Answer 16

Ensuring foreign exchange stability, price stability, interest rate stability, stability of financial markets.

Question 17

Name the monertary policy instruments. (STUDY WHAT THEY ARE IN ECOS NOTEBOOK 2)

Answer 17

1. Interest rate changes
2. Open market transactions
3. Cash reserve requirements
4. Moral persuasion

Question 18

What are the reasons for bank failures? (STUDY THIS SECTION FROM ECOS NOTEBOOK 2)

Answer 18

1. Credit Risk
2. Liquidity Risk
3. Interest Rate Risk
4. Investment Risk
5. Capital Risk

Question 19

What are the consequences for depositors if Banks fail (STUDY THIS)

Answer 19

1. Repayment of depositors
2. No SARB assistance
3. Selling Assets

Question 20

What are the consequences for shareholders if Banks fail? (STUDY THIS)

Answer 20

1. Depositors priority
2. Last to recover
3. Selling bank as a going concern