types of money 4.1

flat money

money that has no intrinsic value except by the gov’t decree/fiat

commodity money

goods that have some intrinsic value in it (gold, nuts, cigarettes in old POW camps)

open market operations

intermediary for the people who stash/keep their money to have it more liquid

BSP (central bank of ph)

• direct control over money supply

• to reduce money supply, sell govt bonds

• to increase money supply, buy back public’s bought govt bonds

Money Supply

total amt of money in economic system

100% Reserve Banking

banks accept deposit but not loans (stashed, isn’t used) if banks hold 100% of deposits in reserve, bank doesn’t affect money supply

fractional reserve banking

banks hold only a fraction of deposits as reserves. the rest they lend out/invest (for other investors/banks to use)

realistic bank model

owners need a capital to start a bank, they borrow money (in debt) to finance operations: reserves, loans, securities

leverage

used borrowed money to supplement existing funds/investments

leverage ratio

ratio of banks total assets bank capital

capital requirement

ensures that the bank pays their depositors/creditors

monetary base (B)

total # of ₱ held by public currency (C) and by banks as reserve (R). Controlled by BSP.

reserve-deposit ratio

fraction of deposits held by bank in reserves (determined by govt)