Study Guide: Money, Banking, Saving, and Investing

What are the characteristics of money?

Acceptability, scarcity, divisibility, durability, portability, uniformity.

What are the functions of money?

Medium of exchange

store of value

unit of account (standard of value)

What is the difference between currency and money supply?

Currency = physical cash; Money supply = cash + deposits.

What is purchasing power?

The real value of money in terms of what it can buy.

What is the role of banks?

Accept deposits, make loans, facilitate transactions.

What do central banks do?

Control money supply, set interest rates, regulate banks.

What are checkable deposits?

Deposits with high liquidity and low/no interest.

What are savings deposits?

Deposits with higher interest and slightly less liquidity.

What are time deposits (CDs)?

Fixed term deposits with highest interest and least liquidity.

What is credit?

Borrowing money to pay later, such as loans or credit cards.

What is saving?

Setting aside money for future use, low risk and low return.

What is investing?

Putting money into assets for potential growth, higher risk and return.

What are assets?

Anything with market value like cash, stocks, bonds, real estate.

What are liquid assets?

Assets easily converted to cash, like savings accounts.

What is interest?

Payment for borrowing or lending money.

What are stocks?

Ownership shares in a company, may yield dividends and capital gains.

What are bonds?

Loans to governments or corporations with fixed interest payments.

What are mutual funds?

Pooled investments in stocks and bonds offering diversification.

What are securities?

Tradable financial assets such as stocks, bonds, and ETFs.

What is rate of return?

Profit or loss percentage on an investment.

What is diversification?

Spreading risk across different investments.

What is commodity-backed money?

Currency that can be exchanged for a specific commodity like gold or silver.

What is fiat money?

Currency not backed by a commodity; all modern paper money.

What is a banknote?

An early form of paper currency issued by banks, exchangeable for gold or silver.