Money and financial markets · GCSE Economics

Money and its functions

Money is anything widely accepted in exchange for goods and services. Its functions: a medium of exchange, a store of value, a unit of account (measuring value) and a standard of deferred payment (for debts).
Barter (swapping goods) needs a double coincidence of wants, which money avoids.

Commercial (high street) banks take deposits, make loans and provide payment services.
Building societies are owned by their members and specialise in mortgages and savings.
Insurance companies spread risk by collecting premiums from many people.
The central bank (the Bank of England) issues banknotes, sets the Bank Rate and acts as lender of last resort to banks. Guernsey has its own banknotes issued by the States of Guernsey.

Interest is the reward for saving and the cost of borrowing.
Simple interest: £1,000 saved at 3% earns £30 a year.
The Annual Percentage Rate (APR) shows the yearly cost of borrowing, including fees.
Factors affecting saving and borrowing: interest rates, confidence about the future, income and the availability of credit.

Shares are part-ownership of a company; shareholders may receive dividends. Bonds are loans to governments or firms that pay a fixed interest.

Money: Anything widely accepted in exchange for goods and services.
Medium of exchange: Money used to buy and sell goods.
Store of value: Money keeping its value over time.
Barter: Swapping goods without using money.
Central bank: The bank that manages a country's currency and interest rates.
APR: The yearly cost of borrowing, including fees.
Share: Part-ownership of a company.
Dividend: A share of a company's profit paid to shareholders.