MONEYBANKING

MONEYBANKING - MONEY AND BANKING TRADE BY BARTER A system...

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MONEY AND BANKING TRADE BY BARTER A system in which goods are exchanged for goods without the use of money DISADVANTAGES Double coincidence of wants Transaction between 2 people was possible only when the one possessed what the other wanted. The rate of exchange Even when the appropriate customer was found, it was the not easy to carry out the transaction. The question of the rate of exchange between the 2 goods was not easily resolved. It was rather difficult to say for certain how much a cow was worth in terms of bags of corn. Indivisibility Say a cow = 10 bags of corn, when it came to a point where only 3 bags of corn were actually needed, the problem of indivisibility showed up very clearly. MONEY Anything which is generally accepted as a payment for goods and services and for the settlement of debts. HISTORICAL STAGES OF MONEY Commodity money A great variety of commodities have served at one time or another as a medium of exchange, e.g. cattle, tobacco, leather, bear, gold, cigarette, silver, iron etc. PROBLEMS WITH THESE COMMODITIES Durability and Indivisibility These problems gave precious metals an ascendancy as the most satisfactory medium of exchange. Precious metals had a high and stable value easily recognizable divisible into extreme small units. They came to circulate as money. Problem with Precious Metals People enriched themselves with these coins through debasement Debasement Coin melted down to reduce their gold content Token Coin Coin whose intrinsic value u, the value of the gold content contain in the coin is less than the face value of the coin. They constitute most coins in circulation today.
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Gresham’s Law Bad money drives out good money Paper Money See section on a short history of Banking Pg. 302 The Characteristics of a Good Money 1) General acceptability 2) Durability 3) Portability 4) Divisibility 5) Non-counterfeitability The Four Jobs of Money or the Functions of Money 1) Medium of exchange When any good or service is purchased, people use money 2) Standard of value When you want to buy something you say, “How much?” 3) Store of value 4) Standard of Deferred payment OUR MONEY SUPPLY Money Coins, paper money, demand or checking deposits and checkline deposits (commonly called NOW or negotiable order of withdrawal accounts) Coins Pennies, nickels, dimes, quarter, half dollars and silver dollars Paper Money Dollar bills, fives, tens, twenties, fifties and hundred dollar bills Currency Coin + paper money 7 of every 10 dollars in our Ms are demand and other checkable deposits a) Checks are not money, checking deposits are b) Demand deposits payable on demand M1 Currency + demand deposits + travel’s checks + NOW accounts + share draft account (CU) M2 M1 + saving deposits + small – denomination time deposits + money MKT mutual funds
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Money market mutual funds are issued by stockholders and other institutions, usually slightly higher M3 M2 + large – denomination time deposits (+ $100,000) Fed most closely watch M2 however, M1 still remains our basic money supply
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MONEYBANKING - MONEY AND BANKING TRADE BY BARTER A system...

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