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1、MONEYandBANKINGWhatismoney?Moneyisanythingthatisgenerallyacceptedasameansofexchangeforgoodsandservices.Ittakesavarietyofforms:shells,salt,cattle,gold,cigarettes,paperandmanyothercommodities.FunctionsofMoney:·MediumofExchange;InamoneyeconomysuchasIreland,moneyserves
2、asamediumofexchange.Toremainacceptable,itmustbelimitedinsupply.Otherdesirablequalitiesare:(i)Homogeneous-allunitsmustbeidenticalinquality;(ii)Portable-easilycarriedaroundtomakepayments;(iii)Divisible-capableofsub-divisionintosmallunits.(iv)Durable-itmustretainitsva
3、lueovertime;and(v)Recognisable-itsauthenticitymustbeeasilyrecognisable.·MeasureofValueandUnitofAccount;Makespossibletheoperationofapricesystemandautomaticallyprovidesthebasisforkeepingaccounts.·StandardofDeferredPayment;Acontractoranagreementcanbemadenowtoexchangeg
4、oodsorsettleadebtinthefuture.·StoreofWealthorValue:Convenientwayofkeepinganyincome,surplustopresentneedsThreestepsinthedevelopmentofmoney:1.CommodityMoneyorIntrinsicMoney.2.PaperMoneyordebasedMoney3.LegalTender1.CommodityMoney,Peoplehaveadoptedmetallicmoneyusingpre
5、ciousmetals,goldandsilver.Goldandsilverareacceptableinallpartsoftheworldnomatterwhatthelevelofdevelopmentis.Thereasonsare:a)wantedfortheirownsake,b)portable,c)divisible,d)readilyrecognisable,e)limitedinsupply,f)notsubjecttomuchdeterioration.But"badmoneydrivesoutgoo
6、d"(Greshams'Law)2.PaperMoney:Inthepastholdersofgolddepositeditwiththegoldsmithsforsafe-keepingandreceivedareceipt.Thesereceiptsbegantopassfromhandtohandinexchangeforgoodsinplaceoftheoriginalgold.Papermoneywith100%goldbackingevolved.Goldsmithsdiscoveredthatmuchofthe
7、goldwhichbackedthesereceiptslayidleintheirsafes.Solongastheykeptsufficientgoldtomeetdaytodaywithdrawals,theycouldissuereceiptsinexcessoftheirstockofgold.Couldmakeloansonwhichtheycouldchargeinterest(goldsmithsbecamebankers).Liketoday'sbanks:·goldsmithshadtomaintainr
8、eservesandthesehadtobeimmediatelyavailabletomeetdepositors'demands.·theirreserveratiowastheratioofreservestodeposits.·theirpdependedontheamountle
