FE T7A

Flashcards covering the functions of money, types of monetary systems, money measurement in Malaysia, motives for holding money, bank operations, and central bank tools for controlling money supply.

Money

Any items that are regularly used in economic transactions or exchanges and accepted by buyers and sellers.

Medium of Exchange

A function of money as a means of payment that sellers generally accept and buyers generally use to pay for goods and services.

Unit of Account

A standard unit in which prices can be stated and the value of goods and services can be compared.

Store of Value

The property of money that preserves value until it is used in an exchange, serving as an asset.

Commodity money

A monetary system in which the actual money is a commodity, such as gold or silver.

Gold standard

A monetary system in which gold backs up paper money.

Fiat money

A monetary system in which money has no intrinsic value but is backed by the government.

M1 (Transactions Money)

The combination of currency held outside banks, demand deposits, traveler's checks, and other checkable deposits.

M2

A measurement of money comprising M1 plus savings deposits, money market accounts deposits, small denomination time deposits, and money market mutual funds.

M3

A measurement of money comprising M2 plus large denomination time deposits of $\$100,000$ or more, or fixed deposits.

Bank Negara Malaysia (BNM)

The central bank of Malaysia responsible for measuring money and controlling the money supply.

Narrow Quasi Money

In the Malaysian context, the sum of savings deposits, fixed deposits, NIDs, Repos, and foreign currency deposits.

Debit Card

An instruction to the user’s bank to transfer money directly and immediately from a bank account to a seller, functioning like a cheque.

Credit Card

A means of deferring payment that is considered a short-term loan from a company to the user rather than money.

Demand for Money

The relationship between the quantity of money people want to hold as liquid assets and determine factors like price level, interest rate, and real GDP.

Transactions Demand for Money

The money people hold specifically to pay for goods and services they anticipate buying.

Speculative Demand for Money

The money held in response to concerns that the prices of bonds and other financial assets might change.

Precautionary Demand for Money

The money people hold for contingencies such as medical needs.

Financial Intermediaries

Institutions that act as a link between individuals or firms with excess funds to lend and those who need to borrow funds.

Liquidity

The ability to convert assets into a spendable form, specifically money, quickly.

Balance sheet

An account statement for a bank that shows its sources of funds (liabilities) and the uses of its funds (assets).

Liabilities

The sources of funds for a bank, including deposits and owners' equity.

Assets

The uses of funds for a bank, including loans and reserves.

Reserves

Funds that a bank keeps at the central bank or on hand as vault cash.

Net Worth

The excess of total asset value over and above total liabilities.

Required reserves

The specific fraction of deposits that banks are required by law to hold as reserves, such as the $2\%$ Statutory Reserve Requirement in Malaysia.

Excess reserves (ER)

Any additional reserves that a bank holds above the required reserves.

Money Multiplier

The term $\frac{1}{\text{reserve ratio}}$ which represents the total increase in checking account deposits for any initial cash deposit.

Discount Rate

The interest rate banks must pay to the central bank whenever they borrow funds from the central bank.

Open Market Operations

A central bank tool for controlling money supply by buying and selling government securities in the open market.

Open Market Purchase

When the central bank buys government securities, expanding the quantity of reserves in the system and increasing the money supply.

Open Market Sales

When the central bank sells government securities to individuals or institutions, reducing the quantity of reserves and the money supply.