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Money and Banking notes

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Concordia University
ECON 331

WHAT IS MONEY a medium of exchange look at ECON 432MoneyCreditParentsoffspringRelationshipTrust ConfidenceBeliefFaith money is built on social conventions Money is built on social beliefsOnce those beliefs have been tampered with there is no trust confidence and faith in it like a relationshipMoney only enters society in only 1 of two waysINTRODUCTION INTO SOCIETY1Custom and Habitas a biproduct of TraditionCultureSocial Value System2 Government Legislation of an item as legal tenderCurrencyBank notes and coinsFIAT MONEYmoney made through power of government authorityBank Depositsaccountsbecome a form of money through custom and habitFIDUCIARY MONEYNOT LEGAL TENDERFORMS OF MONEYFIAT MONEYFIDUCIARY MONEYELECTRONIC MONEYnot really a different form of money Bank deposit accounts that are transferred through electronic impulsesDebit card is a transfer devicemodern version of chequesCredit cards leave you liable for a transaction of moneyThese are Money SUBSTITUTESMoney substitutes are created by BANKSBanks Started as simple safe keeping institutions now invest finance etcPrimary depositsSecondary deposits created out of lending activities of banksThe banking system has complete monopoly power of what we call money todayBANKS NEED SECURITY to be successfulTo be a banker you need to beCreativeInnovativePrudent How did we move away frommetals shells cigarettes etc other forms of money to the currency we have nowThree factors that drive the evolution of money1 Changes in Social Value system2 Changes in Payment Habitswhen you are paid3 Technological ProgressLook at Asymmetric Information Problemsfor text book st chapter 3 then 2 then 1 then 16 etcONLY CANADIAN VERSION11912Concept of Price RatesDomestic and Foreign ExchangeCurrency And Bank DepositsAnonymity premiumCash is the only form of money that leaves little or no piper trail is the only form of money that gives privacyBank DepositsLeave paper and electronic trailsGradually giving rise to electronic or network money not only transfer devices anymore but also storageThere will always be a desire for cashIf a Bank is to survive there has to be cash inflows Cash is the basis of the systemThe electronic system and advancement in technology will diminish transaction costs and decrease the use of cash But IT CANNOT ELIMINATE IT there will always be a desire for cashTransaction costsOpportunity costsSearch and Shopping costsPrice and Information CostsMoney gives rise to credit credit will reduce the use of cash but never eliminate itMoney REDUCES the transaction costs but NOT ELIMINATEPrice is not Costcost is how much it costs to make Price includes extra for profit and overheads etcP ACSCMp
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