3.2.5 The role of money and financial markets

4 Characteristics of money

Divisible, limited in supply, difficult to forge, holds value over time

Money as a medium of exchange

G/s can be traded without a barter system

Money as a store of value

Assets can be saved, retrieved and exchanged at a later time

Money as unit of account

Unit by which value of a g/s is accounted and compared

Money as a method of deferred payment

Agreement between the lender and borrower allowing the borrower to pay whenever

Double coincidence of wants

Barter situation where two parties each hold a g/s the other desires

Narrow money

Notes and coins in circulation

Broad money

Narrow money and money held in banks

Purpose of financial market

Chanel funds from those with surplus funds to those with a shortage of funds

Do savers of borrowers have higher interest rates

Borrowers

Role of Central Bank (Bank of England)

Set base interest rates, manage money supply, regulate financial institutions

Role of Commercial banks (High Street Banks)

Accept deposits, lend money, provide efficient means of payment

5 Factors that impact interest rates

Size/length of loan, confidence, economic conditions, BofE base rate, past record of repayments

Building societies

A financial institution owned by its members as a mutual organisation