Handout 15 - Money & Financial Markets
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Micro 15 - Money and Financial Markets
The financial system is important, as without it all other forms of markets, including product and labour
markets don't work effectively. It is therefore important to have a well-functioning system that brings
different groups of economic agents together.
Before we go into details of the financial system, we must consider the role of money in the economy.
Money consists of:
- ('C){:9-~ I c_Q_~V\ I \o C<' \l__
By being widely accepted as a means of payment, money is considered a medium of exchange. Without
money, we would have to resort to a barter system.
~ ' '
· ,n a barter economy, people have to swap goods. But for this system to work, there would have to be a
double co-incidence of wants. This occurs when:
-t,O
- - ~o peopl9- tNCY\t 'JO~ ~'v\0- \oot\A ~ P j
e>iec\AJW\.~e .
Barter economies can therefore be inefficient because:
, Handout 15 - Money & Financial Ma,k,~
It's importa nt t9 remember that money does not include items like cheques, credit
or debit cards. This is
because:
• They allow for transfer of money between producers and consumers to take place,
but they aren't
a means of payment.
In developed economies, money is often saved or borrowed from financial institutio
ns. These financial
intermediaries are part of the financial sector which is respohsible for the function
ing of the economy, by
rewarding savers that keep their money with them and lending it out to people or
businesses that might
want t~ borrow money.
Fi~ancial institutio ns can be of ~arious types. The most importa nt one is the Central
Bank. Every country
will_ h~ve ~ Central Bank (CB). The UK Central Bank is called the ~ IL 0 / ~c.Jc.aol. . Its
main Job 1s to set the Interest rate, also known as the base rate. This is the rate at
which it lend~to
commercial banks in the UK.
The Bank's other responsibilities are:
- fr 1f\\l ~ (V\.Q )~ / pf OV \ ck (\ /\o-1\ C\ .J\ <?:,-to.bJ,i ~
\ocr"\' £_~ feir co~ CAQ J. bcS\\.LS ·
Other financial institutio ns you need to be aware of are:
CC0'\ N\9!ua,_l ~ Cy'\~
~ ~u\l&A'3 Soaefre~
j
r
Micro 15 - Money and Financial Markets
The financial system is important, as without it all other forms of markets, including product and labour
markets don't work effectively. It is therefore important to have a well-functioning system that brings
different groups of economic agents together.
Before we go into details of the financial system, we must consider the role of money in the economy.
Money consists of:
- ('C){:9-~ I c_Q_~V\ I \o C<' \l__
By being widely accepted as a means of payment, money is considered a medium of exchange. Without
money, we would have to resort to a barter system.
~ ' '
· ,n a barter economy, people have to swap goods. But for this system to work, there would have to be a
double co-incidence of wants. This occurs when:
-t,O
- - ~o peopl9- tNCY\t 'JO~ ~'v\0- \oot\A ~ P j
e>iec\AJW\.~e .
Barter economies can therefore be inefficient because:
, Handout 15 - Money & Financial Ma,k,~
It's importa nt t9 remember that money does not include items like cheques, credit
or debit cards. This is
because:
• They allow for transfer of money between producers and consumers to take place,
but they aren't
a means of payment.
In developed economies, money is often saved or borrowed from financial institutio
ns. These financial
intermediaries are part of the financial sector which is respohsible for the function
ing of the economy, by
rewarding savers that keep their money with them and lending it out to people or
businesses that might
want t~ borrow money.
Fi~ancial institutio ns can be of ~arious types. The most importa nt one is the Central
Bank. Every country
will_ h~ve ~ Central Bank (CB). The UK Central Bank is called the ~ IL 0 / ~c.Jc.aol. . Its
main Job 1s to set the Interest rate, also known as the base rate. This is the rate at
which it lend~to
commercial banks in the UK.
The Bank's other responsibilities are:
- fr 1f\\l ~ (V\.Q )~ / pf OV \ ck (\ /\o-1\ C\ .J\ <?:,-to.bJ,i ~
\ocr"\' £_~ feir co~ CAQ J. bcS\\.LS ·
Other financial institutio ns you need to be aware of are:
CC0'\ N\9!ua,_l ~ Cy'\~
~ ~u\l&A'3 Soaefre~
j
