Week 7 - The Meaning & Functions of Money

  • Definitions of money - narrow, broad
  • Function of money, ESU
  • The role of the financial sector - expert advice, channeling funds, maturity transformation, risk transformation
  • Attributes of money
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  • Created by: Preeya
  • Created on: 23-03-13 09:26
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  • The Meaning & Functions of Money
    • Functions (ESU)
      • Medium  of Exchange: Buying and selling goods, services and assets
        • Barter economy- goods and services exchanged for other goods and services.
      • A means of storing wealth
      • Means of establishing value of future claims and payments (unit of count): e.g. workers & managers establish wage rates. Counting in the same units = efficient.
    • Definitions of money
      • Narrow Money
        • Cash + Current Accounts
      • Broad Money (DSA)
        • Deposit & Savings Accounts
    • Ideal attributes of money
      • durability
      • divisibility
      • transportability
      • non-counterfeitability
    • The role of the financial sector -  Financial Intermediaries
      • expert advice
      • The financial sector- Raises efficiency of Y. If national economy develops so should the financial sector
      • Channeling funds
      • Maturity transformation
        • The transformation of deposits into loans for a longer maturity  period.
      • Risk transformation
        • The process whereby banks can spread the risks of lending by having a large no. of borrowers.
          • Banks lend to lots of customers. Can therefore absorb the loss of the odd default because of the interest they earn on other loans.
  • non-counterfeitability


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