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)

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)