Money, Banking, and Financial Institutions

Money, Banking, and Financial Institutions

This chapter discusses the functions of money and gives a definition of the money supply as well as factors that back money supply. Economics money is considered as a medium of exchange and is also used to store value. Money is used as a basic unit for accounting a countries GDP as well as other measures of the economy. Money makes it for the economy to run effectively and efficiently because it is used as a medium of exchange. It is difficult to trade without money. The period before money was characterized by barter trade which was not a flexible trading system. Money is also used as an accounting unit because it is possible to value businesses consistently using money. As a store of wealth, money allows individuals to amass wealth without having actual products which can be hard to keep as time goes by. 

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Money is found in currencies which can be paper or coin money. Token money is also known as currency. The face value of currency exceeds the actual value of paper money or metal coin money. The history of coin money has it that valuable metals like gold and silver were used as coin money. The face of coin money today is used to represent its value. There institutions offering checkable deposits like saving and loan associations, credit unions, commercial banks, and mutual saving banks. M1 money supply is used to define money in liquid form like cash, check deposits, and travelers checks. M2 money supply is less liquid form of money. M2 money includes M1 plus savings and time deposits, deposit certificates, and money market funds. The use of credit cards enables people to economize money. Money supply is a country is connected to the supply of gold. People have moved away from managing money using gold standard forms because it is more sensible to have a money supply. Money is valuable because it consider legal tender, its acceptability, and relatively scarce. The purchasing power of money refers to the amount of goods and services a specific unit of money can buy. 

Banking system refers to a network or group of institutions which provide financial services for people. The banking institutions are used in operating systems of payments, provision of loans, helping individuals with investments and taking deposits. 

Financial institutions are categorized into commercial banks, insurance companies, pension funds, securities firms, investment banks, thrifts, and mutual fund companies



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