1. Money and Finance
SEPTEMBER 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 if
they can be converted easily into cash. We say they
are liquid assets, or are near money.
 E.g. personal savings can be withdrawn immediately
but savings tied up in a bond for two years will not
become a medium of exchange until the bond has
matured.

5. Physical Assets
 E.g. jewellery, valuable antiques.
 A good store of value but are not generally acceptable
in exchange for other goods and may be difficult to
sell quickly to raise cash. Hence, they are not near
money.
 They can go down in value over time if they become
less collectable or damaged.

6. Velocity of Circulation
 The number of times notes and coins are
exchanged, or circulate in an economy over a period
of time.
 E.g. you make $1 in return for some work. You buy a
magazine for a $1. The shopkeeper uses that $1 to
buy gas. This dollar has been used 3x and created $3
of income.