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Money and Bank Balancing

Money and Bank Balancing - Money an asset that is widely...

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Money: an asset that is widely accepted as means of payment Remarks: 1. Stocks, bonds, gold bars: not money- fail to be widely accepted, not money 2. Credit Cards: not assets, instantaneous loan (Right to borrow up to a certain limit) M= money supply M1= cash in the hands of the public (No banking institutions. Only Households, businesses, government agencies [except fed, and treasury]) and checking account deposits (B/c these have to always be available to take out) and travelers checks. M2= M1 + savings account deposits and money market deposits and money market funds (Investment money that is loaned out from these accounts) Money Supply= should think about M1 unless specified. Functions of money 1. Money is means of payment 2. Store of value 3. Unit of account (Everything is expressed in dollars, better for comparison) Maturity: the time a bond is due. A bank or person can resell bonds before maturity. Bank Balance Sheet Assets: Property and buildings Gov. and corporate bonds Loans Cash in vault In accounts with the fed Liabilities: Checkings Other Diposits Bank borrowing Shareholder’s equity/capital -Assets and Liabilities should be equal. -Required Reserve Ratio: % of Checkings put in reserve -Minimum reserves= RRR X Checkings -Discount rate= interest rate that the fed charges when it lends money to banks.
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-Smaller the discount rate the higher the incentive for the bank to get more loans. And the bank will keep the reserve close to the minimum or on it.
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Money and Bank Balancing - Money an asset that is widely...

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