Functions of Money and the Swiss National Bank (SNB)

These flashcards cover the key concepts of the functions of money and the role of the Swiss National Bank, including its tools and policies.

What are the three primary functions of money?

Unit of measure, medium of exchange, store of value.

What does money as a 'unit of measure' allow you to do?

Compare different goods with regard to their value.

What does the term 'medium of exchange' mean in the context of money?

It allows individuals to trade their goods using money.

Why is money considered a 'store of value'?

It retains its value over time, allowing the postponement of goods consumption.

What is required for money to be considered 'good' money in terms of acceptance?

It must be accepted by sellers for the exchange of goods.

Why is trust an essential requirement for money?

People need to believe it will retain its value; otherwise, they will use alternatives.

What does scarcity refer to regarding money?

Only scarce money can have value; if it is unlimited, it has no value.

Name two forms of money mentioned in the notes.

Cash (notes and coins) and book money (electronic funds).

What is the role of the Swiss National Bank (SNB)?

It ensures price stability, stability of the financial system, and proper money supply.

What does the SNB do to manage price stability?

Ensures inflation does not exceed a certain level.

What is a REPO agreement as used by the SNB?

A transaction where the SNB buys securities from a bank and sells them back later.

How does low REPO interest influence the economy?

It encourages borrowing, grows the money supply, and reduces interest rates.

What happens during expansive monetary policy?

The money supply grows, interest rates fall, and the economy is boosted.

What effect does selling foreign currency have on the CHF?

It decreases the money supply of CHF, causing its value to rise against other currencies.

How does adjusting the minimum reserve ratio affect commercial banks?

Raising it restricts money creation; lowering it expands money creation.

What does the minimum reserve ratio dictate for commercial banks?

The percentage they must hold as a reserve of client assets.

What is a result of banks creating new lending money?

They can provide loans multiple times over from client assets.