1. Money and FinanceSEPTEMBER 2012

2. What is Money? A medium of exchange A store of value A measure of value A means of deferred payment 3. Where Does the Money Come From? Notes and coins circulating in an economy Deposits with banks and other financial institutions MONEY SUPPLY 4. Financial Assets Cash can lose its value over time as prices rise. Financial assets can provide a good store of value,hence they are a good form of money, especially ifthey can be converted easily into cash. We say theyare liquid assets, or are near money. E.g. personal savings can be withdrawn immediatelybut savings tied up in a bond for two years will notbecome a medium of exchange until the bond hasmatured. 5. Physical Assets E.g. jewellery, valuable antiques. A good store of value but are not generally acceptablein exchange for other goods and may be difficult tosell quickly to raise cash. Hence, they are not nearmoney. They can go down in value over time if they becomeless collectable or damaged. 6. Velocity of Circulation The number of times notes and coins areexchanged, or circulate in an economy over a periodof time. E.g. you make $1 in return for some work. You buy amagazine for a $1. The shopkeeper uses that $1 tobuy gas. This dollar has been used 3x and created $3of income.