Chapter 10. Use of money is a social custom Its role is to facilitate exchange Money itself is any...
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- Chapter 10
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- Use of money is a social custom Its role is to facilitate
exchange Money itself is any asset accepted as payment for goods or
services Without money we would barter like traditional societies
Although barter works it can be complex and inefficient
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- 1. Medium of Exchange: commonly accepted payment 2. Unit of
Account: standardized and easily measured 3. Store of Value: holds
purchasing power over time
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- Durablelasts for an extended period Portableeasy to carry &
exchange Divisibleeasily broken into measurable units
Uniformsimilar in appearance and has a standard value ScarceNot
overly printed or in too great abundance AcceptedSociety is certain
that it has value
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- Fiathas value because the government says so legal tender
Representative stands in for money IOU, silver certificate
Commodityhas other uses besides acting as money Tobacco, water
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- Money supply all the money available in the economy This
includes money in and out of banks Liquidity refers to how easily
an asset can be turned into cash Federal Reserve tracks the amount
of money in circulation or in the economy
http://www.youtube.com/watch?v=S-bJYM_7MLw
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- The Financial Systemvarious markets, players and institutions
that coordinate the channeling of funds between borrowers and
savers Borrowersdemand money from the system with the knowledge
that they will have to pay it back with interest Saverssupply money
to the system with the expectation that it will be paid back to
them with interest
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- Financial Markets places where savers can lend their money to
borrowers Stock Marketfirms sell a portion of their profits (stock)
which can be resold Bond Marketfirms issue bonds (IOUs) which can
be resold Any stake in an asset traded on a financial market is
called a security
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- Investment Banksraise money for companies (perhaps even
nations) and manage wealth of private investors (merchant bank)
JPMorgan, Goldman Sachs Credit Unionscooperative lending for
specific groups Marshland, Teachers Commercial Banksoffer a wide
range of lending services to the public (retail bank) Bank of
America, United Community
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- Banks serve several purposes: 1. Store Moneysafe and insured 2.
Vehicle for Saving variety of accounts available 3. Loansrenting
money at a cost 4. Creditform of deferred payment Principle is
amount owed Interest is cost of renting the principle
https://www.youtube.com/watch?v=RH_bNdlOoiA
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- FDIC preserves and promotes public confidence in the U.S.
financial system by insuring depositors identifying, monitoring and
addressing risks to the deposit insurance funds limiting the effect
on the economy and the financial system when a bank or thrift
institution fails