4.1 the structure of financial markets and financial assets

Characteristics of money

Durable and portable, holds value over time, hard to counterfeit, acceptable when making transactions, divisible, limited supply (scarce), uniformity

4 functions of money

Medium of exchange

Store of value

Unit of account

Standard of deferred payment

Significance of medium of exchange as a function of money

Money acts as an intermediary in the exchange of goods and services. It eliminates the inefficiencies of a barter system where a double coincidences of wants is required.

Significance of unit of account as a function of money

Money provides a common measure of the value of goods and services. Allowing for price comparisons, assessing costs , simplifying economic decision making and planning

Significance of store of value as a function of money

Allows wealth and value to be stored over time without a significant loss of value, assuming a stable currency and low inflation. This is because money is durable unlike perishable goods or non liquid assets

Significance of standard of deferred payment as a function of money

Facilitates agreements of future payments such as loans or contracts. Method to value a debt thereby allowing goods to be acquired now and paid for in the future.

Which characteristics of money are relevant to which functions

Store of value - durable, holds value over time, limited supply

Unit of account - durable, divisible, holds value over time, uniformity

Standard of deferred payment - durable, holds value over time

Medium of exchange - accepted, divisible,

Narrow money includes

Notes, coins and sight deposits

Narrow money layman definition

Money that can be accessed immediately

The money supply

The stock of money in an economy at a point in time

What percentage of uk’s money supply is cash (2020)

4%

Liquidity

How quickly an investment cam be sold without negatively impacting its price/loss of value

What is the most liquid asset

Cash

Describe a bank deposit in terms of assets and liabilities for the different stakeholders

Asset to the account holder/customer

Liability to the bank

Why was cash a liability to the BoE before 1931

If asked by note owners they would have to convert banknotes into gold on demand

Monetarism

An economic school of thought which believes that the simply of money in an economy is the primary driver of economic growth

What is included in broad money

All of narrow money and !!!!!!

The size of money supply determines the…

Willingness of consumers to spend

Explain the relationship between Money supply and economic growth