Anything acceptable as a means of paying for products/services
What are the three functions of Money?
1. Medium of exchange (acceptability boy all as means of payment) 2. Unit of account (stand unit for measuring and comparing prices) 3. Store of value (Time machine for moving purchasing power from present to future; you can earn now and spend later)
Why hold money instead of bonds?
Money provides more liquidity, and is acceptable from all buyers and sellers
Price of holding money, what you give up by not holding bonds
How is Interest rate determined?
By demand and supply in both money and bond markets
Law of demand for money
As the price of money the interest rate rises, quantity demanded of money decreases
What are the types of Money?
Commodity Money, Fiat money, Deposit Money, Convertible Paper Money
Convertible paper Money
Paper money that can be converted into gold on demand
Saleable product with alternative uses serving as money.
Currency (government issued) with no other uses valuable simply by government decree
Demand deposits blanches in bank accounts that depositors can withdrawal on demand.
What is canada's central bank?
Bank of Canada they are responsible for supervising chartered banks and financial institutions and for regulating the supply of money
Lender of Last Resort
Loan other banks money to preserve stability of financial system
Many depositors withdrawal at the same time so bank may not have enough to pay all depositors
How is the interest rate the price of money (name two ways)
Opportunity cost of holding the money AND cost of borrowing money
How bonds or money more risky?
Bonds are more risky and less liquid than money because bonds prices can change due to market price
Is there more then one type of interest rate?
YEs there is many different interest rates on different financial assets but they all rise and fall together