Money and Banking Notes

Understanding Money

• Money facilitates the exchange of goods, ascribing value and enabling deferred payments.

• Functions: Medium of exchange, measure of value, store of value, method of deferred payment.

• Money eliminates the double coincidence of wants required in bartering.

• Characteristics of Good Money:

  • Divisibility

  • Acceptability

  • Durability

  • Scarcity

  • Uniformity

  • Portability

Central & Commercial Banks

• Central Banks:

  • Implement monetary policy

  • Act as banker to the government

  • Serve as banker to commercial banks/ lender of last resort

  • Regulate the banking industry

• Commercial Banks:

  • Facilitate saving

  • Lend to businesses and individuals

  • Facilitate the exchange of goods and services

  • Provide forward markets in currencies and commodities

  • Provide a market for equities

Understanding Money

• Money helps us trade things by giving them a value and letting us pay later.

• Money makes it easier to trade because we don't need to find someone who wants what we have and has what we want.

Central & Commercial Banks

• Central Banks:

  • Make rules about money.

  • Manage the government's money.

  • Help other banks and lend them money if they need it.

  • Watch over the banking business.

• Commercial Banks:

  • Help people save money.

  • Loan money to businesses and people.

  • Make it easier to buy and sell things.

  • Offer ways to protect against changes in currency and commodity prices.

  • Provide a place to buy and sell stocks.