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Chapter 16 - Money & Banking - CIE IGCSE/O Level Economics

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Published in: Economics
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Revision summary of Chapter 16 - Money & Banking of the CIE IGCSE & O Level Economics syllabus.

Laurea C / Dubai

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Teaches: Economics, Business, IGCSE/AS/AL, IB Exam Preparation, Business Studies, Maths, Mathematics

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  1. HONEY AND BANKING CHAPTER 16 ?
  2. Learning Objectives money state the forms of money explain the functions of money • describe the characteristics of money Commercial Banks • analyse the role of commercial banks • discuss the importance of commercial banks Central Banks • analyse the role of central banks • discuss the importance of central banks
  3. NONEY forms, functions & characteristics
  4. Forms Cash: coins and notes Bank accounts: direct debits, credit cards Functions Medium of exchange Store of value Unit of account Standard of deferred payments Characteristics generally acceptable, therefore limited in supply • durable portable divisible recognisable
  5. CORRERCIAL BANKS what they are, roles & characteristics
  6. WHAT THEY ARE Commercial = Retail = High Street • Private organisations • Profit-driven Offer products and services in exchange for money • Easily found (geographically)
  7. ROLES Where people are paid to and pay from Current Quick and immediate access Accept account • Typically no interest deposits Used for saving Savings Bank rewards saving with interest Bank Lend Loan account Quick and immediate access For particular purpose at particular time Banks do due dilligence (credit ratings) May ask for collateral: asset to be sold if customer defaults (e.g., house, car) Overdraft • Customer spends more than actual balance High interest rate Used for shortcomings Enable payments
  8. How do they make money? Charging interest On loans, overdrafts... Spread Difference between the interest paid on deposits and the interest charged on loans Offering Financial Products and Services Wealth Management, Foreign Exchange, Valuable Item babysitting...
  9. Aims Profitability Remember, they're private institutions aiming to make a profit it's a trade-off, might conflict Liquidity Banks are liquid when hey can meet their customers' requests to withdraw money from their accounts. How? Maintaining liquid assets: items which can be turned into cash quickly and without incurring loss. What's a liquid asset you can think of?
  10. CENTRAL BANKS What are they? The single most important and influential bank in the country or region.
  11. Roles Banker to the Tax re Into govt's account at the central bank, govt expenses paid from there National Debt Borro alf of govt through bonds Banker to the commercial banks Enables CBs to pay one another and draw out cash if liquidity is low Lender of last Lends orarily illiquid commercial banks Country's reserves of foreign currency and gold Keeps foreign currency and gold to influence Bank note otes and destroys old ones. Authorises coin minting Monetary policy implementator Keeps inflation low and steady by controlling money supply and the interest rate the exchange rate. Government Regu the banking system
  12. You should know... • The four functions of money are — medium of exchange, store of value, unit of account and standard of deferred payments. To act as money, an item has to be generally acceptable, limited in supply, durable, portable, divisible, homogeneous and recognisable. The three main functions of commercial banks are — to accept deposits, lend and to enable their customers to make payments. Other functions of commercial banks include dealing in foreign currency, holding important documents and small valuables, helping with wills and tax, selling insurance and providing mortgage loans. A central bank is owned by the government. Its functions include acting as the banker to the government and commercial banks, managing the national debt, holding reserves of foreign currency, acting as lender of last resort, issuing bank notes, controlling the money supply, implementing interest rate changes, supervising the banking system and meeting with other central banks and international organisations.

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