Money and Liquidity Flashcards

Flashcards on Money and Liquidity

Money

Any asset generally acceptable in a particular society as a means of payment or settling debts; held with the expectation it can be re-exchanged for a desired good or service.

Medium of Exchange

One of the four major functions of money; facilitates transactions by being accepted as payment for goods and services.

Unit of Account

One of the four major functions of money; provides a common standard for measuring and comparing the value of goods and services.

Store of Value

One of the four major functions of money; allows value to be held over time for future use.

Standard of Deferred Payments

One of the four major functions of money; enables debts to be settled at a future date.

Commodity Money

Money whose value comes from a commodity out of which it is made, possessing intrinsic value (e.g., gold, silver).

Metallic Money

Money made from metals with intrinsic value (e.g., gold, silver, copper), minted into coins for use as a medium of exchange.

Fiat Money

Government-issued currency not backed by a physical commodity, its value derived from government decree and legal tender status.

Commercial Bank Money/Demand Deposit

Money created by commercial banks through accepting deposits and making loans; funds can be withdrawn at any time without prior notice.

Electronic Money (E-money)

Money that exists in electronic form, stored digitally and used for electronic transactions (e.g., bank account balances, prepaid cards, digital wallets).

Debit Cards

Electronic cards linked directly to a bank account, allowing customers to access funds electronically for purchases, online transactions, and ATM withdrawals.

Credit Cards

Electronic cards that allow users to borrow money from a credit issuer up to a limit to make purchases or withdraw cash, with a monthly bill for repayment.

Prepaid Cards

Electronic cards loaded with a fixed amount of money before use, not linked to a bank account, used for POS transactions and online purchases until the balance is exhausted.

Acceptability

Essential characteristic of money; currency is generally accepted as a medium of exchange.

Legal Tender

Essential characteristic of money; paper money designated by the government, requiring acceptance as a medium of exchange.

Relative Scarcity

Essential characteristic of money; its value derives from limited supply relative to demand.

Portability

Essential characteristic of money; it is small, transportable, and easily transferable.

Divisibility

Essential characteristic of money; it can be broken down into smaller units for small purchases.

Durability

Essential characteristic of money; it must have a long lifespan.

Stability of Value

Essential characteristic of money; it remains fairly stable in value despite inflation and deflation.

Hard to Counterfeit

Essential characteristic of money; it must be difficult to copy by unauthorized money-makers.

Medium of Exchange

Function of money; it passes from hand to hand in exchange for goods and services or in payment of debt.

Store of Wealth

Function of money; it allows individuals to hold a claim over present and future goods and services.

Unit of Account

Function of money; the values of all economic goods are measured in terms of money, allowing comparison.

Standard of Deferred Payment

Function of money; it is used as a benchmark for specifying future payments for current purchases, facilitating loans and credit.

Static Roles of Money

Includes serving as a medium of exchange, unit of account, standard of deferred payments, and store of value.

Dynamic Roles of Money

Relate to its influence on the economy’s overall functioning and growth, including influencing interest rates and impacting exchange rates.

Liquidity

The ease with which an asset can be converted into cash quickly and easily at a price equal or close to its true value.

Money and Near Money

Money includes currencies and demand deposits, while near money refers to assets that can quickly be converted into cash with minimal loss of value (e.g., savings deposits, treasury bills).