Ch4.1 - Ch.4 Ch.4 Financial Market Financial Market 1 1. 1....

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h.4 Ch.4 inancial Market Financial Market 1
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. Introduction 1. Introduction
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1 Mone and its Uses 1.1 Money and its Uses ± Money has three principal uses. 1. A medium of exchange is any object that is generally accepted in exchange for goods and services. ² medium of exchange overcomes the need A medium of exchange overcomes the need for a double coincidence of wants. ² Money acts as a medium of exchange because people with something to sell will always accept money in exchange for it. 3
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one and its Uses Money and its Uses 2. Money serves as a unit of account. Money is a ardstick for measuring economic value For yardstick for measuring economic value. For example, the price of labor and the prices of nancial assets are expressed in dollars financial assets are expressed in dollars. 3. Money is a store of value in the sense that it can be held and exchange later for goods and services. Money is a way to transfer purchasing power from the present to the future. 4
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amples one and its Uses Examples- Money and its Uses ± Which of the following items is money? ± A visa credit card ² It can be used a medium of exchange, but it is not money, because money must eventually be used to settle the account. Thus, credit cards are called a money substitute. ± A share of HSBC stock ² It is not money. Although it is a store of value, it is not a medium of exchange nor a unit of account. 5
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amples one and its Uses Examples- Money and its Uses ± A well-known painting ² A painting is not money, although it can be converted into money by selling it (like most goods). It is a store of value, but it is neither a medium of exchange nor a unit of account. ± Currency-Notes ² They are money 6
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amples one and its Uses Examples- Money and its Uses ± Checkable deposits ² Checking deposits are money because they can be transferred from one person to another by writing a check. 7
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oney and its Uses Money and its Uses ± There are several official measures of money, uch as M1 and M2 such as M1 and M2. ± M1 consists of currency (CU)--coins and bills eld by the public nd checkable deposits held by the public--and checkable deposits-- deposits at banks on which one can write a heck check. 8
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1.2 The Choice between Holding Money and Bonds ± You hold wealth in two forms: money and bonds. ou hold money for convenience because money ± You hold money for convenience because money is a medium of exchange. ± Money is a financial asset that can be used for transactions and pays no interest. ± A bond is a financial asset that promises to make ne or specified payments at specified dates in one or specified payments at specified dates in the future. ± Bonds are financial assets that pay an interest rate, but cannot be used for transactions.
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This note was uploaded on 02/19/2011 for the course ECON 1021 taught by Professor Kokwanwai during the Fall '08 term at CUHK.

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Ch4.1 - Ch.4 Ch.4 Financial Market Financial Market 1 1. 1....

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