Money and banks Cambridge IGCSE Economics revision
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In plain words
Without money you would have to swap goods directly: a baker who wanted shoes would need to find a shoemaker who wanted bread. Money solves this. Anything that people are willing to accept in payment can be money.
Banks look after money and move it around. Commercial banks deal with the public. The central bank is the government's bank, and the bank of the other banks.
5 things to know
- The functions of money: a medium of exchange, a store of value, a unit of account (a measure of value) and a standard for deferred payments (it lets people buy now and pay later).
- Good money is generally acceptable, durable, portable, divisible, limited in supply, and hard to forge.
- Forms of money include notes and coins, and bank deposits, which make up most of the money in a modern economy.
- Commercial banks accept deposits, lend to households and firms, and provide ways to pay, such as cards and transfers. They aim to make a profit.
- A central bank issues notes and coins, is banker to the government and to commercial banks, is the lender of last resort, sets the interest rate, and manages the country's reserves of foreign currency.
Tips and tricks
- Functions are what money does. Characteristics are what makes something good at being money. Keep the two lists apart.
- "Lender of last resort" means the central bank will lend to a commercial bank that is short of cash, to stop it collapsing.
It lands in your notebook with its questions as flashcards.
Money and banks: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which function of money lets you compare the value of a bicycle and a television?
Prices in the same unit let values be compared.
Which is a characteristic of good money?
Money must last. If anyone could make it easily, it would lose its value.
Which is a function of a commercial bank?
The other three are jobs of a central bank.
What does a central bank do as lender of last resort?
It supports banks in difficulty so that people do not lose confidence in them.
Buying a sofa and paying for it in twelve monthly instalments uses money as
The debt is fixed in money and paid later.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Money and banks
Cambridge IGCSE Economics 0455 · 8 marks · papermunch.org
Name ______________________________ Date ______________
State two functions of money.[2]
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Any two of: a medium of exchange, a store of value, a unit of account, a standard for deferred payments.
Explain why fresh fish would not make good money.[3]
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It is not durable, so it would rot and could not store value. It is also hard to carry and to divide into exact amounts.
Explain two functions of a central bank.[3]
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It issues the country's notes and coins, and it acts as banker to the government, holding its accounts and managing its borrowing. It also sets the interest rate and lends to commercial banks as a last resort.
Answers: Money and banks
- 1. Any two of: a medium of exchange, a store of value, a unit of account, a standard for deferred payments.
- 2. It is not durable, so it would rot and could not store value. It is also hard to carry and to divide into exact amounts.
- 3. It issues the country's notes and coins, and it acts as banker to the government, holding its accounts and managing its borrowing. It also sets the interest rate and lends to commercial banks as a last resort.