Chapter 8 what is money.docx

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22 Apr 2012
Chapter 8 what is money? 4/10/2012 5:00:00 PM
The characteristic of Money
Money: An object generally accepted by people as payment for
goods and services
o Portability: modern currency light weight and easy to use
o Divisibility: Modern currency is easily divisible into smaller
parts with fixed value for each unit
o Durability: Modern currency does not spoil, does not die, if it
wears out it can be replaced with new coins and paper money
o Stability: Value of paper money we use today has fluctuated
over the years
The Functions of Money
Medium of exchange
Store of value: Money can be used for future purchases thus it
“stores” value
Unit of account: Money lets us measure the relative values of
goods. All Values can be valued and accounted for term of money
Credit card: Plastic money
Referred as plastic money
Not qualified as money but SUBSITIUDE OF MONEY
Temporary medium of exchange but does NOT store value
Big business for 2 reason
o Convenient
o Extremely profitable for issuing companies
Profit derives from 2 sources
o Annual fee, or interest on unpaid balances
o Merchants who accept credit cards pay fees to card issuers
Financial institution
Main function of financial institution is to ease the flow of money
from sectors with surpluses to those with deficits
Bank can issue financial claims against itself by making available
funds for checking and saving accounts
4 distinct legal area
o chartered banks
o Alternate banks
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o Life insurance companies
o Investment dealers
Trust companies have declined in importance
Chartered Banks: A privately owned profit seeking firm that
serves individuals non business organization and business as
financial intermediary
Chartered banks are largest and most important financial institution
in Canada
Canada has branch banking system
Five largest schedules a bank account for about 90 percent of total
bank assets
Some of them also have branches in other countries
Services offered by banks
Banking highly competitive industry
Personal Service
o Most banks help customers establish savings plans for
o Provide info on investment possibilities
Trust banks: The management od founds left “in the bank’s trust
o Performs task such as monthly bill payment, managing
investments portfolio
o Mange estate of deceased person
International Services (3 main)
o 3 Main services currency exchange, latter of credit and
banker’s acceptance
o Letter of credit: A promise by a bank to pay money to a
business firm if certain conditions are met
o Banker’s acceptance: A promise that the bank will pay
specified amount of money at a future dale requires
payments by particular day
o Letters of credit are payable only after certain conditions are
Financial Advice
o Banks help their customers mange their money
o Banks recommend different investment opportunities
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