1. Money & Banking

2. Money
any object or record that is generally accepted by people as payment for goods and services and repayment of debts in a given country or socio-economic context.

3. Functions of Money Means of Exchange 2) Measure of Value
Money enables people to freely exchange the goods & services that they produce.
Overcomes “the double coincidence of needs and wants”.
2) Measure of Value
Amount of money given for a
product is a reflection of the value
of that product.
Unit of account.
Easier to record: write how much
you’re owed rather than the list of
things.
3) Means of Deferred Payments
Enables operation of an efficient
credit system.
Under the barter system, people
were reluctant to give credit.
Credit is an essential feature in
our economy.
4) Store of wealth
Saving is simplified.
Saved money can be exchanged
in the future.

4. Characteristics of a Good Money Form
Instantly
Recognisable
2) Portable
3) Reasonably Durable
4) Divisible into units of small value
5) Relatively Scarce

5. Forms of Money Cash i.e. notes & coins Claims on Banks
Lodgments
Obtaining loans
Credit/debit card usage
Cheque-writing
Money transfers
Legal Tender => any money form which must be accepted in settlement of a debt. Cheques are not legal tender.

6. Money Supply
Purchase Agreements (RP’s / Repos) = financial instruments used in the money markets & capital markets. One person sells securities to the other for cash & agrees to repurchase the security from the cash provider for a greater some of cash at some later date.
Currency outstanding
+ Overnight deposits
= Narrow money supply (M1)
+ Deposits (2 yr maturity)
+ Deposits (3 month notice to be redeemed)
+ Post Office savings
+ Bank deposits
= Intermediate money supply (M2)
+ Purchase agreements
+ Debt securities (2 yr maturity)
+ Money market funds
= Broad money supply (M3)
Debt Securities cover bonds, debentures & notes that usually give the holder unconditional right to a fixed money income or contractually determined variable money income. They include treasury bonds, equity-related bonds(convertible bonds) & Eurobonds.
Money Market Funds = securities that can be purchased through most stockbrokers or directly from banks. Mostly used by people who sell a stock then put the proceeds in a mmf account until they decide where they want to reinvest the money.

7. Banking Ratios Primary Liquidity Ratio (PLR)
The ratio of cash which the banks must hold to claims on the banks.
Secondary Liquidity Ratio (SLR)
The ratio of liquid assets held by the banks to claims on the banks (safeguard used by banks to access cash quickly).

8. Limitations to Create Credit
Cash Deposits
Ability of Customers to Repay
Changing PLR
Guidelines set by ECB & Central Bank

9. Gilt-edge investment in govt. bonds
Cash
call
Exchequer Bills
Gilt-edge investment in govt. bonds
Loans & Overdrafts

10. Liquidity requirement
By banks is the cash holdings which ensure customers can be
paid.
Exchequer bills
91 day loans given to govt. at a fixed rate of interest.
Monetary Policy
policy regarding the amount of money in circulation, interest rates and credit creation. It is determined by the ECB & implemented by the Central Bank.

11. Powers of Central Bank to Control Credit Creation
Altering of the PLR = banks hold more cash for their customers’ requirements, thus, reducing their credit creating capacity and vice versa.
Foreign Exchange Swaps = if banks are running low on cash they can temporarily swap some foreign currency for Euro, therefore improving their credit creating capacity.
Alter STF Rate = any change in STF causes banks to change their rates accordingly. If STF was increased, banks would increase their rates to their customers causing contractions in demand for loans.
Open Market Operations = Central Bank sells securities on Stock Exchange. This takes cash out of banks, thus, reducing their credit creating capacity.
Advice & Directives = lays down guidelines on credit policy.
Supplementary Deposits = call in cash deposits from banks, thus, reducing their cash holdings, leading to a reduction in lending capacity.

12. Irish Central Bank’s Main ResponsibilitiesEU
Domestic
Contributes to maintenance of price stability & stable financial system.
Ensures safe & reliable payment & settlement systems.
Produces & distribute € banknotes & coins & ensures security & integrity of the € currency.
Manages foreign exchange assets on behalf of the ECB.
Provides advice & guidance on Irish policies.
Serves public interest.
Acts as banker to the govt.

13. Effects of € on Irish Economy
Foreign travel
Price comparisons
Greater awareness & competition
Greater choice of financial products & low interest rates on loans
Prudent management of the economy
Inflation

14. 1. Increased trade opportunities
Commercial Sector
1. Increased trade opportunities
2. Exchange risks eliminated (no devaluation/revaluation)
3. Easier payment for trading
4. Lower interest rates
5. Cost of imported raw materials and capital goods
6. Pressure for domestic competitiveness

15. Loss of some degree of sovereignty
On the govt.
Loss of the ability to manipulate exchange rates to manage the bal. of trade
Loss of some degree of sovereignty
Loss of direct control over national monetary policy
Budgetary policy (closer to tax harmonisation)
Tax harmonisation refers to the process of making taxes identical or at least similar in a region. In practice, it usually means increasing tax in low-tax jurisdictions, rather than reducing tax in high-tax jurisdictions or a combination of both. The best example is the European Unionwhere all countries must have a value added tax of at least 15%.

16. Exam Questions Higher Level Ordinary Level 2010 (L) – 6 (a)
2009 (L) – 4 (a), (c)
2011 (S) – 6, 9
2009 (S) – 6
2004 (S) – 5
2003 (S) – 3
2000 (S) – 4
1999 (S) – 6
1998 (S) – 3
2011 (L) – 6 (a) , (b)
Ordinary Level