Ch. 3 Notes (BUS G-345; Money, Banking; and Capital Markets; Self)

Ch. 3 Notes (BUS G-345; Money, Banking; and Capital Markets; Self)

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 10
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 3: What is Money? Money is an asset that is generally accepted in economic transactions or exchanges. {Asset is anything of value owned by a person or a firm. Four Functions of money 1) Medium of exchange: Without money, all transactions must be Via barter, which is problematic because of the alas“- ,- I . 0 is where both parties to engage in Itrade want what the other one has. 0 Money solves the .-. ..r because it is readily accepted in exchange for goods. 2) Unit of account: Prices are quoted in terms of money, making economic transactions easier H Maturity cfgmms‘L‘c-f-“é‘ Z7 3) oP' Velma : Ideally, money will not change value over time, so exchanges don’t have to all happen at the same time. 416% n9 [fei{bc,o{0€fi'4’( qa fed 0 Money loses value during times of inflation, making it an imperfect store of value. 4) Standard of Deferred Pa ment for borrowing and lending. grileria that make a good suitable to use as a medium of exchange: 1) 2) 3) 4) 5) The good must be a/‘r’w’i-.-/-’ *‘ to (that is, usable by) most traders. -(JC” l". 54""; '- - 'I I . ' It should be of a“: - .r . ‘ so that any two units are identical. It should be so that value is not lost by spoilage. It should be 2 relative to its weight so that amounts large enough to be useful in trade can be easily transported. The medium of exchange should be because different goods are valued differently. Evolution of the Payments System W is money with intrinsic value. 9 W We "L (W 1‘ “fir/‘3’” 0 Valuable, easily standardized and divisible commodities (e. g. precious metals, cigarettes). ' My is money without intrinsic value 0 Example: A piece of paper that says it is legal tender for all debts, public and private written on it. Paper money is decreed by governments as legal tender. Checks: an instruction to your bank to transfer money from your account Electronic Payment (6. g. online bill pay) E—Money (electronic money): 0 Debit card 0 Stored-value card (smart card) 0 E-cash 3oz W195 ate/26% we was—j 4mg Measuring money in the US. economy There are many ways to perform a transaction and thus there are many definitions of money. The difference between the definitions of money is in terms of their M of an asset is the ease at which it can be converted to a form that can be used for PEER]??? In the U.S., the most liquid asset is cash. We will look at several different assets that comprise the US. money supply. 2007 money aggregates Savings deposits $3.01 1 billion $ (in billions) $3,000 $2,500 _ $2,000 Money market mutual $1 .500 funds Small—time $949 deposits billion $795 Currency Chockable $764 deposits billion $600 3 billion $1,000 Total reserves $42 billion $500 ' «(aw More liquid Less liquid -->-I Means of payment Common Measurements of Money Monetary Base: Includes bank reserves held at the Fed and currency outstanding (meaning all paper money and coins that are in circulation, we will see). M1 includes, 0 Currency outstanding O The dollar value of all at banks. 0 The dollar value of traveler’s checks. M2 includes, 0 Everything that is in M1 0 Savings account balances 0 Small denomination time deposits (e.g., certificates of deposit (CDs)) 0 Balances in money market deposit accounts in banks 0 Non—institutional money market fund shares. The Money Pyramid M2: M1 + savings deposits + money market mutua! func + small-time deposits $14 trillion M1: Currency + $1.3 trillion checkable deposits MB: Currency and .. . reserves held by banks $806 bnlhon at the Fed \ Note that the base of the money pyramid is the smallest portion of the pyramid! When we think of money supply we are considering M1 and/0r M2. M1 and M2 can move in different directions in the short run (see figure). The choice of monetary aggregate is important for policymakers. FIGURE 1: Growth Rates of the M1 and M2 Aggregates, 19602008 Annual Growth Rate (°/o) 20 M2 m1 .2 1 1 5 a; p I, .- I . ’2 10 — 10 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Table 2: Growth rates of M2 Revisions are issued because: Small depository institutions report infiequently and adjustments must be made for seasonal variation. We probably should not paymuch attention to $5: an MW in the money supply numbers, but should be concerned only with We]: m, I movements ...
View Full Document

Page1 / 10

Ch. 3 Notes (BUS G-345; Money, Banking; and Capital Markets; Self)

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online