Chapter 5 Flashcards
What is one difference between money and other assets?
Money has a fixed par value whereas other assets have a variable value
There are two types of credit money. What are they?
Commercial bank money
Central bank money
How does the money supply of bank increase?
If banks increase their lending
Households hold cash to meet which needs?
Transactional
Precautionary
Speculative
Why is any large banking company in normal times likely to have quite stable deposits?
The law of large numbers operates in the case of banks with many depositors
What does liquidity mean?
The ability to turn an asset into cash with minimum loss or value at minimum cost and without taking time
The ability to raise finance
What are the essential problems in trying to finance a modern, capital intensive economy?
The real assets underlying productivity, economic growth and job creation are inherently illiquid
Someone has to give up consumption now in order that more consumption goods are available in the future
Liquidity can be created for investors and savers by a means of what ?
Secondary markets for securities
The provision of bank deposits
With an upward sloping yield curve, borrowers at the lower cost short-end who are financing long-term real investment take on which type of risk?
Roll over risk
Why is equity financing attractive to a company financing long-term real investment?
It never has to be repaid and thus makes a company safer
What is bridging finance?
Temporary loan to cover the cost of the new house whilst house is being sold
What is wealth ?
A total measure of assets
What increases borrower liquidity
Longer term loans
What is a primary market?
Where investors can directly buy securities from the company when they are new.
What is secondary market?
The securities are traded between traders and investors
