Money, Banking And Interest Rates Essay example

1768 Words Nov 15th, 2015 null Page
Money, Banking and interest Rates in Our Economy
The meaning of Economy is the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services and the careful management of available resources. Interest rates, money, banking, monetary policy, supply and demand are all vital to our economy. The rotation of money is what keeps an economy going. Sometimes to keep that rotation going we have to borrow money from lenders at a cost, most of the time that cost is interest rates.
The Role Of Banks Financial market is a highly organized place which provide mechanism to bring together the people who demand for and supply of financial instruments. One of the most important functions of the financial system is to share risk and it is often argued that financial markets are well suited to achieve this aim. Banks perform an important role in terms of maturity transformation. They collect demandable deposits and raise funds in the short term capital markets and invest them in long- term assets. This maturity mismatch allows them to offer risk sharing to depositors but also exposes them to the possibility that all depositors withdraw their money early. When all depositors withdraw their money early it puts the bank in a crisis because there is a certain amount of cash they are required to have to meet the Federal Reserve’s requirement. When banks don’t meet this requirement they are charged a penalty. This explains why we all…

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