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18 Cards in this Set
- Front
- Back
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What is the money market?
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Money markets are made up from all organizations that want money and all the people and organizations willing and able to supply money.
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What is a bank?
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Banks are financial institutions in the money market. They are just like any other business except the product they supply is money, in the form of loans and other financial products.
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How do banks earn money?
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- Making Loans
- Charging Interest on loans - Changing fees for their services - Investing in shares in other companies. |
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Making Loans
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Banks accept deposits of money and saving from their customers and also give out loans from this money, They attract deposits and savings by paying customers interest on their money.
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Charging Interests on Loans
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The interest rate is the cost of borrowing money. As long as loans are repaid and interest charges on loans are higher than interest payments on savings and deposits, a bank will make a profits from giving out profit.
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Charging fees for their services.
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A bank may charge customers on withdrawing money from cash machines, currency exchange, making investments, arranging loans and the issuing of credit/debit cards as well other things.
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Investing in shares of other companies.
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Banks can use money depositted by customers into purchasing shares of companies in the stock market. They make profits if the stock value rises. They may also make money from divdends.
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Types of banks:
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- Commercial Banks.
- Savings Banks. - Savings and loans associations. - Credit unions. - Investment banks. - Islamic Banks. |
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Other Money Market institutions:
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- Finance houses.
- Venture Capitalists. - Pensions funds. - Insurance companies. - Investment and unit trusts. - Building societies. |
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Finance Houses -
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Hire purchase. A place where buyers (producers) can buy products and pay an upfront fee of 10% deposit and the rest is repaid periodically.
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Venture Capitalists -
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VC will provide 90% of funding and will invest in the idea of the business and sponsor it. Will enjoy a share of the profits.
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Pension Funds -
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Amount of money diverted towards savings for the retirement fund, and the accumulated cash is given to retirement.
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Insurance Companies -
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Coverage of Health, Life, Car and other Assets.
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Investment and unit trusts -
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If the money is invested, either in fincance and when money is returned it comes with a higher value.
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Building societies -
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Groups of people accumulate cahs and then its distributed amongst its members in order to build houses.
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The stock Market
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A shareholder is any person or organization that holds share as part of a corporation's stock.
The total value of a corporation's issued shares is called its market capitalization. |
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The central bank
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The main function of a central bank is to maintain the stabilitity of the national currency and the money supply in its country or in its group of member states - like the EU.
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The functions of central bank
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- The sole right to issue notes and coins.
- It is the government's banker. - It manages the nation's gold and foreign currency reserves. - It manages the national debt. - It regulates and supervises the banking system. - It is 'lender of the last resort' - It sets the official interest rate. |
