Money and Financial Institutions

Emeral Sakinah Oktavian Lintin Michael Whizo 112120175 112122200 112122196

IST!"# !F M!$E#
io t i d a r T nal m o n o c E y
There s a proble m to f in o ut th e p ro p d goods er b the pe etween rson w ho need a n d the person wh o h as the go o (doub ds le coinci dence want) of

Bar Sys ter tem

Thats why we need money

Mediu m of E%cha nge

Something that the buyer gi+e to the seller when he want to buy something

,uidelines that people used in setting prices and record debts

&nit of 'ccou nt

Standa rd of )iferre d *ayme nt

Money f nction in econom y

of (alue

Something that can be used to transfer purchasing power the present to the Store future

*ayments made in the future

-i.uidity
Somethin! ea"ily converted a""et" into a medi m of e#chan!e in the economy$ % Money i" the mo"t li& id a""et$ % Stock"' (ond" are fairly li& id a""et"$ % ) ildin! home"' land' i" an a""et that i" relatively not "o li& id$

Types of Money
1$

/ommedity Money

Money in the form of a commodity that ha" intrin"ic val e$ *ntrin"ic val e + refer to an o(,ect or thin! that remain" val a(le even if not "ed a" money$ e#am-le. /!old' "ilver0 a" a medi m of e#chan!e (eca "e it ha" the follo1in! -ro-ertie". 0 "ecei+ed in general because of the nature of its rarity1 0 2uality of gold with other gold between relati+ely similar and homogeneous1 0 $ot easily bro3en (durable) 0 The +alue is relati+ely stable

5ea3nesses6 0$ot fle%ible 0security was not guaranteed 0)ifficulty to di+ide (undi+isible)

2$ 2iat Money
Money ha" no intrin"ic val e' 1hich "erve a" money (eca "e it 1a" defined a" " ch (y the !overnment e#am-le. (ank note" /-a-er and metal0 Stren!th". More fle#i(le Ea"ily (roken do1n into a n m(er of "mall nit" or lar!e Weakne""e". S "ce-ti(le to for!ery Ea"ily dama!ed

3haracteri"tic Of Money
7 1 'cceptance Money m "t (e ea"ily e#chan!ed 4 acce-ted (y "ociety at lar!e ' ea"y to ( y -rod ct or "ervice" $

8 1 )i+isibility Money "ho ld (e ea"y to divided in the form of fraction" ' for e#am-le' in addition there are (roken 5- 100'000 or 5- 50'000 al"o have a fraction 5- 2'000 ' 5- 1'000 ' 5- 500 ' 5- 200 ' 5100 "o it i" ea"y for the "er in the -ayment of lar!e amo nt" of !ood tran"action" a" 1ell a" "mall

9 1 *ortability Money "ho ld (e ea"y to carry' in a - r"e or other -lace of money $ 6he form of coin" are often not a--reciated (y the - (lic (eca "e of the 1ei!ht of carryin! a lar!e amo nt $ : 1 )urability 7 ality material "ed for money m "t (e d ra(le $ 3oin" are more d ra(le com-ared to -a-er money $ M "t hold the money in fact (e "tored or e#chan!ed over the year" $ ; 1 Stability 6o kee- money readily acce-ted (y the !eneral - (lic m "t (e maintained "ta(ility$ S ch a" hi!h inflation that it 1ill (e many -eo-le 1ho have lo"t their - rcha"in! -o1er a!ain"t -rod ct 4 "ervice" $

2E8E59L 5ESE5:E
6he 2ederal 5e"erve Sy"tem /al"o kno1n a" the 2ederal 5e"erve' and informally a" the 2ed0 i" the central (ankin! "y"tem of the ;nited State"$ *t 1a" created on 8ecem(er 2<' 191<' 1ith the enactment of the 2ederal 5e"erve 9ct' lar!ely in re"-on"e to a "erie" of financial -anic"' -artic larly a "evere -anic in 1907$ Over time' the role" and re"-on"i(ilitie" of the 2ederal 5e"erve Sy"tem have e#-anded and it" "tr ct re ha" evolved$Event" " ch a" the =reat 8e-re""ion 1ere ma,or factor" leadin! to chan!e" in the "y"tem$

/urrent functions of the Federal "eser+e System include6

6o addre"" the -ro(lem of (ankin! -anic" 6o "erve a" the central (ank for the ;nited State" 6o "trike a (alance (et1een -rivate intere"t" of (ank" and the centralized re"-on"i(ility of !overnment 6o " -ervi"e and re! late (ankin! in"tit tion" 6o -rotect the credit ri!ht" of con" mer" 6o mana!e the nation>" money " --ly thro !h monetary -olicy to achieve the "ometime"? conflictin! !oal" of ma#im m em-loyment "ta(le -rice"' incl din! -revention of either inflation or deflation moderate lon!?term intere"t rate" 6o maintain the "ta(ility of the financial "y"tem and contain "y"temic ri"k in financial market" 6o -rovide financial "ervice" to de-o"itory in"tit tion"' the ;$S$ !overnment' and forei!n official in"tit tion"' incl din! -layin! a ma,or role in o-eratin! the nation>" -ayment" "y"tem 6o facilitate the e#chan!e of -ayment" amon! re!ion" 6o re"-ond to local li& idity need" 6o "tren!then ;$S$ "tandin! in the 1orld economy

M lti-le 3hoice
1$ )arter 1ork" (e"t a$ *n the a("ence of a do (le coincidence of 1ant" ($ When many different -rod ct are availa(le in the economy

c$ When money i" relatively availa(le to e"ta(li"h relative -rice" d$ When each trader ha" 1hat the other 1ant" and 1ant" 1hat the other ha"

2$ 9 coincidence of 1ant" ha--en" e#i"t" 1hen a$ 61o -eo-le 1ant the "ame thin! at the "ame time

($ One -er"on 1ant" to ( t t1o different thin!" at the "ame time c$ 6he individ al 1ho ha" 1hat i 1ant' al"o 1ant" 1hat i have

<$ 6he e""ential characteri"tic re& ired (efore any " ("tance can f nction a" money i" that a$ *t (e i"" ed (y the !overnment ($ *t (e (acked (y a -recio " metal c$ 6he " --ly of it (e nlimited and ncontrolled d$ @eo-le acce-t it a" money

A$ 6o "ay that money f nction" a" a medi m of e#chan!e i" to "ay that a$ *t i" the -referred form of com-en"ation for fort ne?teller"' medi m"' and tho"e thro !h 1hom the "-irit 1orld i" contacted ($ *t i" the !enerally acce-ted form of -ayment for !ood" and "ervice" c$ *t i" the common nit of e#-re""in! the val e of !ood" and "ervice" d$ *t i" (o !ht and "old on the "tock e#chan!e

5$ School admini"trator" anno nce the follo1in! "ched le of fee" for the ne#t academic year. *n?"tate t ition B175 -er credit ho rC O t?of?"tate t ition BA00 -er credit ho rC 5oom?and?(oard B<000 -er "eme"ter$ 6hi" i" an e#am-le of money f nctionin! a" a$ 9 medi m of e#chan!e ($ 9 "tore of val e c$ 2iat money

d$ 9 nit of acco nt

6$ Mary Ellen de-o"it" B100 into her "avin! acco nt each month$ Der da !hter 3arolyn kee-" all her -ennie" in a -i!!y (ank$ 6he"e are e#am-le" of money f nctionin! a"

a$ 9 "tore val e ($ 3ommodity money c$ 9 medi m of e#chan!e d$ 9 "tandard of deferred -ayment"

7$ 9ll the follo1in! are e#am-le" of commodity money' e#ce-t a$ 3attle ($ =old

c$ 6o(acco d$ B10 2ederal 5e"erve note"

E$ 9ll of the follo1in! are f nction" of money' e#ce-t a$ Medi m of e#chan!e

($ ;nit of acco nt c$ *nde# of -rice" d$ Standard of deffered -ayment

9$ 9ll of the follo1in! are -ro(lem" 1ith commodity money' e#ce-t a$ Often commodity money deteriorate" in "tora!e ($ Often commodity money i" too ( lky for ma,or tran"action" c$ Often commodity money i" not divi"i(le into "mall and niform nit" d$ Often commodity money i" vie1ed a" an nfair com-etitor (y " --lier" or fiat money

10$ Whatever f nction" a" money m "t (e a$ 9 thorized (y the !overnment ($ 9cce-ted for de-o"it (y (ank" c$ )acked (y -recio " metal" like !old or "ilver d$ Limited in " --ly

11$ 6he difference (et1een (ank note"' 2ederal 5e"erve note"' and fiat money i" that a$ 2iat money i" redeema(le for !old or "ilver' ( t the other" are not ($ )ank note" are redeema(le for !old or "ilver ( t the other" are not c$ 2iat money derive" it" acce-ta(ility a" money from the -recio " metal 1hich F(ackG it

12$ Money i" le!al tender if a$ @eo-le 1illin! acce-t it in -ayment of de(t" ($ *t i" (acked (y !old or "ilver c$ *t i" commodity money d$ 6he !overnment "ay" it i"

1<$ 9n im-ortant f nction of commercial (ank"' in addition to "torin! money and kee-in! it "afe' i" to a$ @rint ne1 c rrency ($ *"" e" fiat money c$ Mint coin" d$ Make loan"

1A$ 6he fir"t (anker" 1ere -ro(a(ly a$ 3ar-enter"

($ Stock (roker" c$ =old"mith" d$ Sea ca-tain

15$ *n the 1orld of (ankin!' check" are a$ Written in"tr ction from de-o"itor to the (ank ($ Written in"tr ction from one de-o"itor to another c$ 9 form of commodity money d$ 6oken money

16$ 2ractional re"erve" (ankin! occ r" 1hen a$ 9 (ank ha" re"erve" 1hich ec#eed it de-o"it" ($ 9 (ank ha" re"erve" 1hich are e& al to it" de-o"it" c$ 9 (ank ha" re"erve" 1hich are le"" than it" de-o"it" d$ Some de-o"itor" lo"e their de-o"it" thro !h -oor (ankin! mana!ement

17$ When -rice" ri"e $$$ a$ 6he - rcha"in! -o1er of money ri"e" ($ 6he - rcha"in! -o1er of money fall" c$ 6he - rcha"in! -o1er of money remain" nchan!ed d$ 6he - rcha"in! -o1er of money either ri"e" or fall"' de-endin! -on the "ize of the national de(t

 9n increa"e or decrea"e in ho1 m ch con" mer" can ( y 1ith a !iven amo nt of money$ 3on" mer" lo"e - rcha"in! -o1er 1hen -rice" increa"e' and !ain - rcha"in! -o1er 1hen -rice" decrea"e$ 3a "e" of - rcha"in! -o1er lo"" incl de !overnment re! lation"' inflation and nat ral and man? made di"a"ter"$ 3a "e" of - rcha"in! -o1er !ain incl de deflation and technolo!ical innovation$

1E$ Which of the follo1in! i" mo"t critical for the maintenance of an efficient' -rod ctive economy H a$ Money (acked (y !old or "ilver ($ Steadily ri"in! -rice" c$ 9n nlimited and nre! lated " --ly of money d$ 9 -ro-erly f nctionin! monetary "y"tem

19$ 9ll of the follo1in! are -o1er" of 2ederal 5e"erve Sy"tem e#ce-t $$$
a$ 6he a(ility to ( y and "ell !overment "ec ritie" ($ 6he a thority to i"" e 2ederal 5e"erve note" c$ 6he re"-on"i(ility to clear check" d$ 6heo(li!ation to make loan" to the !eneral - (lic

20$ Which one f the follo1in! i" not a f nction of the 2ederal 5e"erve (ank" H 6he (ank" "erve a" $$$
a$ Lender to ma,or cor-oration" ($ Lender to (ank" c$ Lender to the federal !overnment d$ )ank to (anker"

21$ )I* A6 )ank ha" checka(le de-o"it" of BE00'000' o t"tandin! loan" and other "ec ritie" val ed at B550'000 and B250'000 of ca"h in it" va lt$ When the re"erve re& irement i" 20J' the (ank ha" $$$
a$ ($ c$ d$ 6otal re"erve" of B160'000 6otal re"erve" of B<00'000 E#ce"" re"erve" of B90'000 E#ce"" re"erve" of B250'000

22$ 6he re& irement that (ank" hold re& ired re"erve" come" from the $$$
a$ ($ c$ d$ )ank *ndone"ia Stockholder" of the (ank 8e-o"itor" of the (ank 8e-o"it *n" rance 3or-oration

2<$ Li& idity contri( te" to the (ankK" achievement of all of the follo1in! e#ce-t $$$
a$ 3onfidence of the de-o"itor" ($ *ncome of the (ank c$ 9(ility to -ay f nd" o t to de-o"itor" on demand d$ 2le#i(ility to make an immediate loan to a val ed c "tomer

2A$ 6he central (ank can increa"e the amo nt of e#ce"" re"erve" in (ank" (y $$$
a$ Sellin! !overnment "ec ritie" ($ 5ai"in! the di"co nt rate c$ )orro1in! from mem(er (ank" d$ 5ed cin! the re& ired re"erve ratio

25$ When a (ank make" a loan of B5000 to a re! lar c "tomer the immediate effect i" that $$$
a$ 6he (ank" a""et" and lia(ilitie" (oth increa"e (y B5000 ($ 6he (ank" " (tract" B5000 from the c "tomerK" acco nt c$ 6otal (ank re"erve" decrea"e (y BA000

26$ 9n individ al (ank in a (ankin! "y"tem can lend no more than it" e#ce"" re"erve" (eca "e $$$
a$ 3redit?1orthy (orro1er" are hard to find ($ Of the re& ired re"erve ratio c$ 6he (ank ri"k" the lo"" of re"erve" 1hen (orro1er" "-end the money d$ Lo1 intere"t rate" make lendin! n-rofita(le

27$ *f an initial increa"e in e#ce"" re"erve" of B20'000 can !enerate a ma#im m increa"e in the money " --ly of BE0'000' the re& ired re"erve ratio m "t (e $$$
a$ AJ ($ 10J c$ 20J d$ 25J

2E$ 9 (ank !ain" e#ce"" re"erve" in all of the follo1in! ca"e" e#ce-t $$
a$ ($ c$ d$ 6he 6he 6he 6he (ank "ell" ;$S$ Sec ritie" to the 2ed re& ired re"erve ratio i" increa"ed (ank "ell" ;$S$ Sec ritie" to the - (lic (ank (orro1" from the 2ed

29$ *n the money and credit e#-an"ion -roce""' 1hen r + the re& ired re"erve ratio' the total chan!e in checka(le de-o"it" i" e& al to the initial chane in e#ce"" re"erve"$$$
a$ ($ c$ d$ M lti-lied (y r @l " the chan!e in re& ired re"erve" 8ivided (y 14r M lti-lied (y 14r

<0$ 6he -otential e#-an"ion of the money " --ly 1hen there are e#ce"" re"erve" can only (e realized 1hen $$$
a$ ($ c$ d$ @eo-le cho"e not to increa"e their ca"h holdin!" )ank" lend only a -ortion of theri ca"h re"erve" )orro1er" "et a"ide -art of their loan" "avin!" )orro1er" c t (ack on (orro1in!

<1$ *n order to increa"e the money " --ly the (ankin! "y"tem m "t have $$$
a$ ($ c$ d$ 5e& ired re"erve" 6he a thority to ( t cor-orate check" 6he a thority to -rint ;$S$ 3 rrency E#ce"" re"erve"

<2$ When the re"erve re& irement i" 10J' each time an individ al (ank !ain" B1000 in re"erve"' it i" a(le to make loan" totalin! $$$ a$ B900 ($ B1000 c$ B100 d$ B9000

E""ay
@ro(lem 1

a$ Why the acco nt 1a" incl ded in the definition of moneyH =iro i" a (ankin! term for a method of -ayment 1hich i" almo"t the rever"e of the check"y"tem' in the form of an order to tran"fer "ome money from one acco nt to another acco nt de"i!nated the letter$ 9 check 1a" !iven to the -ayee /-ayee0 1ho - t it in their (ank' 1hile the c rrent acco nt i" !iven (y the -ayer /-ayer0 to hi" (ank' 1hich 1ill then tran"fer the f nd" to the (eneficiary (ank' directly into their acco nt$ ($ *" there a "tr t /(ackin!0 for coin"' -a-er money' and demand de-o"it"H L c$ Why money can have val e 1itho t ( oyed (y commodityH L

@ro(lem 2
a$ What i" the total n m(er of acco nt i"" ed (y the (ankin! "y"tem if the n m(er of re"erve" totaled B 1'000 and the minim m re"erve -rovi"ion" 1ere /10 0$20 /20 0$16 /<0 0$10 Which . 8 + 6otal 3heckin! 9cco nt" r + com- l"ory re"erve ratio 5 + 6otal re"erve" for the (ankin! "y"tem 10 6he minim m re"erve -rovi"ion" 1ere 0$20

20 6he minim m re"erve -rovi"ion" 1ere 0$16

<0 6he minim m re"erve -rovi"ion" 1ere 0$10

($ What i" the ma#im m n m(er of acco nt" if the -rovi"ion" of the minim m re"erve" and total re"erve" 0$20 /10 B 1000 /20 1250 /<0 B 2'000