1 / 12

Money and Banking

Money and Banking. It’s finally March Money Month!. Functions of Money. 1. Medium of Exchange 2. Store of Value 3. Unit of Account/Standard of Value Cuts down on “transaction costs” that result from bartering (i.e., overcomes the challenge of “double coincidence of wants”).

earlene-marnell
Télécharger la présentation

Money and Banking

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Money and Banking It’s finally March Money Month!

  2. Functions of Money • 1. Medium of Exchange • 2. Store of Value • 3. Unit of Account/Standard of Value • Cuts down on “transaction costs” that result from bartering • (i.e., overcomes the challenge of “double coincidence of wants”). Will trade cheese for towels. Will trade towels for cheese.

  3. Types of Money • 1. Commodity Money • When the medium of exchange is a good. • Examples: gold, salt, cowry shells

  4. Types of Money • 2. Commodity-Backed Money • Derives value from the promise that it is “backed up” by a good. • Guarantee: convert money into commodity on command. • Example: Silver Dollars

  5. Types of Money • 3. Fiat Money • Value comes from our faith in the notion that we can use it: • as a medium of exchange • to store value over time • as a unit of account, a standardized value

  6. Types of Money • 3. Fiat Money • Value comes from our faith in the notion that we can use it: • as a medium of exchange • to store value over time • as a unit of account, a standardized value • Value derived “entirely from its official status as a means of exchange” • Government fiat

  7. Money Aggregates: M1 vs. M2 Liquidity: used to describe assets that can quickly be converted into cash Easily converted (exchanged) with low transaction cost and minimal nominal loss of value

  8. Money Aggregates: M1 vs. M2 What is the most liquid asset? What is the opportunity cost of holding it?

  9. Money Aggregates: M1 vs. M2 • M1: • Currency in circulation: minted coins and paper money • Traveler’s checks • Checkable bank deposits: checking accounts • All of these can directly be used as a medium of exchange, so M1 is very liquid.

  10. Money Aggregates: M1 vs. M2 Fun Fact: Most U.S. currency does not circulate within U.S. borders

  11. Money Aggregates: M1 vs. M2 • M2: • M1 • Near-Moneys (~indirect cash because easily converted) • Savings accounts • Money market funds • Time deposits (like CDs)

  12. Money Aggregates: M1 vs. M2

More Related