1) Money - medium of exchange that is widely accepted in payment for goods and services and to settle debts.
2) Basic functions of money:
+ a medium of exchange - it can be exchanged for goods and vice versa
+ a medium of value - while seeing prices we can compare values of different goods, services, etc
+ a store of value - money is suitable to a mass wealth because it is durable
+ a standard of deffered payment - the amount of credits may be stated in terms of money
+ a legal tender - prawny środek płatniczy
3) Features of money:
+ stability - value of money shouldn't change rapidly during a short period of time
+ transferability - we can easily exchange money for goods and services, WITHOUT any legal actions required
+ durability - money shouldn't wear out easily. If it is worn out we can easily exchange it for new one without any loss
+ visibility - units of money range from very small to big denominations, so we can precise the value of goods and services
+ portability - money must be carried easily by its holders
+ recognisability - money is accepted without any reservations etc. The units of money must follow the same standards (size, weight, etc.)
+ difficult to be counterfeited - special papers, watermarks, metallic treads, holograms, etc. are used to make it difficult to counterfeit
BASIC FUNCTIONS AND SERVICES OF A BANK
The essence of banking is to take deposits and to lend money (or make advances) to borrowers.
Interest of loans is a major source of a bank's profit.
A bank:
- borrows money from repositors
- offers a place to keep funds
- lends part of depositor's funds to borrowers (creditors)
- safeguards the funds and provides money transfer facilities
Current accounts:
- c. a. offer no or very little interest
- they make it possible to pay money into and out of our's accounts
Current accounts provides:
- cheques - institution written by consumer to pay some amount from customer's account to another man
- standing orders - bank has to pay out our part of money to someone else on a given day of the month (rent, bills, etc)
- direct debiting - the firm who customer owes money may require payment instead of the customer
Overdrafts and loans:
- An overdraft - a short-term loan, customer can have a debit balance in the account
- A loan - a debt drawn by a borrower from the lender (a bank). It must be repaid in agreed instalments, with agreed interest of a regular intervals
collateral = zastaw
credit worthiness = zdolnośćwypłacalna
- A banker's draft - a draft which the bank draws on itself (traveller's cheque)
- Traveller's cheque - a special cheque for a fixed amount that can be exchanged for the money of a foreign country
- Deposit or savings account - for deposits which are not being needed at the moment. Customer has interest but he/she pay out his/her money wherever he/she wants.
Other services:
- automated travel machines (ATMs) - cash dispensers - operated by using plastic cards, available 24h per day
- credit card, plastic money - CARDS - a form of payment or credit to pay for goods and services
- foreign exchange services - include servicing and dealing in foreign exchange for exporters and importers and issuing traveller's cheques in various currencies
- safe custody and safe deposit boxes - locked boxes in the safe custody
- discounting bills of exchange - it is possible to buy them for less than the face value
Major source of funds for business
1) THE NATIONAL BANK OF POLAND
- NBP supervisors the polish banking
- issues the national currency
- implementates, develops, controls monetary policy
- maintains the state's financial security and stability of the financial system
2) THE NBP
- is governed by the President of the NBP, the Monetary Policy Council and the Management of NBP
- tePresident of the NBP is the chairman of the Monetary Policy Council
3) The Council of the Monetary Policy
- determines monetary policy
- sets the level of basic interest rates and establishes the rules of open-market operations
- implements the decisions of the Council referring to the NBP plan of activities
4) The main activities conducted by the NBP:
1] MONETARY POLICY - mainly aimed at stable prices by defining the inflation target and adjusting the NBP interest rates to achieve this target
2] ISSUANCE OF NATIONAL CURRENCY - only the NBP canissue polish banknotes and coinsinto circulation
3] BANKING SUPERVISION - te NBP supervisors and regulates commercial banks
4] DEVELOPMENT OF PAYMENT SYSTEM - the NBP regulates monetary settlements and controls payment systems between natural persons and business entities
5] MANAGEMENT OF OFFICIAL RESERVES - the Banks also inests them on international financial markets
6] SERVICES TO THE STATE TREASURY - banking services are provided to the central government
7] EDUCATION AND INFORMATION - mainly educational projects directed towards young people
1) MONEY AGGREGATES
Money (Ml) = currency outside banks + checkable deposits + traveler's checks
M0 - banknotes, coins, cash in vault, current accounts of banks in Central Bank
M1 - coins and notes in circulation, demand deposits in domestic and foreign currency
M2 - M1 + time deposits, savings accounts, repurches transactions
M3 - M2 + medium and long-term deposits
M4 - M3 + bands and shares (papiery wartościowe)
2) STABILIZING THE CURRENCY is made through:
- interest rates
- required reserves ratio
- discount rate
- open-market operations
3) HIGH or LOW > powered money < LIQUID MONEY or CURRENT MONEY
LOAN - for many different things, bank doesn't check what is the money for
CREDIT - for one thing, bank usually check what is the money for
4) TYPES OF BANKS:
- retail banking
- business banking
- corporate banking
- private banking
- investment banking
Barter economy- before the invention of money - barter transactions ,is one without any commonly accepted medium of exchange. Goods are traded directly for other goods. Barter transactions are still used in international trade but it is very inefficient.
Double coincidence of wants- the seller and buyer each must want sth the other has to offer.(in barter economy)
Commodity Money- a commodity money is used as a medium of exchange and also is bought and sold as an ordinary good.
Token monies are those means of payments whose value or purchasing power as money exceeds the cost of production and the value in alternative uses.
Legal tender is money that the government has declared acceptable in exchange and as a lawful way of paying off debts.
An IOU money is a medium of exchange based on the debt of a private firm or person.
A financial intermediary is an institution that stands between lenders and borrowers. It borrows and then relends the funds to the borrowers.
Commercial banks are financial institutions with a state or federal charter that authorizes them to accept checkable and other deposits and make loans.
Commercial bank reserves are assets immediately available to meet claims by the banks' depositors.
A clearing system is a set of arrangements in which debts among banks are settled by adding up all transactions within a given period and paying the net amounts needed to balance the accounts.
Money stock- is the total amount of money available in an economy at a particular point in time.
near-monies- suggesting by the name they do not fully possess all the functions that money must fulfill. Near-monies include, for example, savings accounts at saving and loans (S&Ls).
S&Ls are depository institutions that receive savings deposits and use the proceeds to make mostly real estate loans.
A money market fund is a financial institution that sells shares to the public and uses the proceeds to invest in short-term interest-bearing securities. The holders of shares can sell them by writing checks on the fund.
INFLATION - the balance between all goods and services produced in the economy and the value of stock money
That mean: rising prices / more money than goods
A situation where money stock is bigger than amount of goods and services
- hyper-inflation - more than 1000% per year
- purchasing power of the currency goes down
DEFLATION - there is less money than goods and services so prices must go down
Small inflation is good for economy, we can't remove inflation totally, we have to accomodate inflation
! Acceleration of inflation:
- caused by rapid fall in production
- production of extra money
- can be caused by natural causes or human stupidity
Philips curve: unemployment rises when inflation goes down. It shows an inverse relationship between the inflation rate and the unemployment rate. The higher die rate of inflation, the lower the rate of unemployment.
Stagflation is a period of continuing inflation combined with a recession or stagnation of economic activity.
Costs of inflation:
- bracket creep - moving into higher tax brackets as ones incomes rises to keep up with inflation
- shoe leather costs - time and effort that people spend in trying to counter-act the effects of inflation
- menu costs - printing new price lists
Indexation - adjusting all kind of payments after inflation
Indexation changes the nominal value to do not to change the real money
- redistribution - very quick inflation, one part of society looses, the other has profits
The nominal interest rate is the interest rate expressed in terms of the money payments made on a loan. The real interest rate is the return or cost of a loan expressed in terms of goods and services. The real rate is approximately equal to the nominal rate minus the inflation rate.
Menu Costs when prices are rising, price tags have to be changed. Menus have to be reprinted with the new higher prices. Catalogs have to adjust their prices more often. These are the menu costs of inflation. Note that there are menu costs of deflation as well as inflation. If prices on average are falling, all prices have to be adjusted more often than they do when prices are constant.
How serious are menu costs? In the supermarket, where prices are changed often anyway, the menu costs are small. But for parking meters, pay telephones, or slot machines, the menu costs may be substantial. It takes a lot of work to readjust the rates for a coin-operated telephone. Indeed, in countries where inflation rates are very high, pay phones typically take tokens rather than
Shoe-Leather Costs When there is inflation, it is more expensive to hold currency than it is when there is no inflation. Think of someone who on average carries $80 in currency. That money could be in a bank or elsewhere earning interest, but it is more convenient to have cash in the pocket for shopping.
How much does it cost to carry the currency around instead of keeping it someplace where it earns interest? It costs the interest rate.
The cost of inflation in this case is that people now go to the bank more often. The cost is the nuisance of going to the bank and the bank's need to hire more people to handle the increased business. We summarize these costs as the shoe-leather costs of inflation. The inflation wears out the shoe leather of consumers by making them walk to the bank more often.
Bracket creep occurs as a consequence of inflation when rising prices put people into higher tax brackets even though their real income has not changed. Under bracket creep people pay a larger fraction of their income in taxes because of inflation.
Tax bracket indexation adjusts tax brackets automatically for inflation. In effect taxes are paid on the real value of income.
Incomes policy is policy that attempts to influence wages and other income directly.
Wage and price controls limit and regulate the wages and prices that firms are allowed to pay and charge.
TIP (incomes policies and tax-based incomes policies) is a system in which firms or workers are rewarded or penalized through the tax system in accordance with the increase in prices they charge.
Filling with inflation:
- fiscal policy
- international policy
- income policy
UNEMPLOYMENT - occurs when peron who can work, and is looking for a work, stays without the work for quite long time. Measured by unemployment rate
Okun's law states that annual GNP growth of 3 percent keeps the unemployment rate constant. For every 2 percentage point increase in growth over a year, the unemployment rate declines by 1 percentage point. For every 2 percentage point decrease in growth below 3 percent over a year, the unmployment rate rises 1 percent.
Unemployment benefits typically come to somewhat less than half the after-tax wage. Unemployment benefits are paid for only a limited period after a person loses a job.
The natural rate of unemployment- or the full-employment rate of unemployment, is 5 to 6 percent. Policies to reduce the natural rate focus on the very high unemployment rates among teenagers. The role of the minimum wage in causing teenage unemployment is controversial. Nonetheless, the evidence is that the minimum wage does cause higher unemployment, especially among teenagers, as economic theory suggests it would.
Unemployed person- A person counts as unemployed if he is out of a job and has looked for work during the past 4 weeks. Some special cases do not fit the general definitions; for instance, someone waiting to take a job within the next month counts as unemployed. Labor market statistics classify people into one of three groups: employed, unemployed, or out of the labor force. People who count as either employed or unemployed are in the labor force.
The duration of unemployment - the length of time a person is unemployed
Discouraged workers- those who leave the labor force from unemployment because they believe they cannot find a job
Labor force- siła robocza- adults 18-65, not convicted, without disabilities
TYPES OF UNEMPLOYMENT:
- classical (this occurs when wages in a competitive labour market are pushed above the equilibrium. This is sometimes known as "disequilibrium" unemployment. Wages will also be sticky downwards. This could be caused by minimum wages, or trades unions)
- hidden (people who have given up looking for work)
- cyclical (connected with the business cycle,this occurs when the economy is below full capacity)
- frictional (this is unemployment caused by people moving in between jobs, e.g. graduates or people changing jobs. there will always be some frictional unemployment.Also high benefits may encourage people to stay on benefits rather than get work this is sometimes known as "voluntary unemployment")
- structural (workers lack the skills which are needed for vacancies) --> restrukturyzacja
A minimum wage is the lowest hourly, daily, or monthly wage that employers may legally pay to employees or workers. Equivalently, it is the lowest wage at which workers may sell their labor.
The employment rate is the % of those in a given group who are working
PLASTIC CARDS
1. GENERAL
Currently there are many types of plastic card in use in retail purchases. Usually but not quite correctly they are called credit cards. Such names as leisure, entertainment, debit or travel cards are also commonly used.
There are many features that plastic cards have in common such as the material they are made of i.e. plastic, their standard size i.e. 85 x 55 mm and they are usually issued by banks, building societies or finance houses. All of them are used as a form of payment, or more of a credit, for the purchase of goods and services in retail trade.
One has to bear in mind, however, that there are many different types of plastic cards which differ, sometimes very substantially, in terms of their application and regulations that govern their use.
2. CREDIT CARDS
e.g. VISA or MASTERCARD are standarized, rectangular and magnetized pieces of plastic. They bear an identification number, an account number, the name of the user and they are signed by the user.
The retailers who participate in the system know that an individual (the user of the card ) has an instant line of purchase credit up to a preset limit agreed with the issuer. They are paid direct by the credit card company which deducts a service charge and they are allowed to charge premiums for credit card sales.
The users are charged monthly and no interest is charged if the full debt is settled each month. The users do not have to repay all the debt but there is a minimum repayment required e.g. 5% of the outstanding debt and high (usually some 24% to 30% interest is charged on outstanding monthly balances. There is no charge for accounts cleared at the appropriate payment date.
Usually there is no annual fee for credit cards but there is a tendency to charge an annual fee for the usage of a credit card in exchange for lower interest on outstanding debts.
3. CHARGE CARDS
e.g. American Express, Diners Club are a payment vehicle accepted in lieu of cash. They are similar in size and form to credit cards.
The user of a charge card makes purchases on credit and at the end of the accounting period (usually monthly) is sent a bill for full and complete payment for purchases made. Contrary to credit cards there is no preset spending limit.
The sources of the issuer's income are: annual charges on users, commission from retailers and interest on overdue accounts.
4. STORE CHARGE CARDS
They work as credit cards and they are issued on a credit scoring basis by major chains of shops in order to encourage store loyalty. Store charge cards carry high intererest but provide some advantages to the customer (apart from the credit itsetf) such as sale previews. private late night pre-season shopping and a free magazine.
5. CHEQUE CARDS
They are issued to current account holders. They carry the name of the customer (who has to sign the card on a special strip of paper) and his account number.
Their main function is to guarantee cheques drawn on the customers current account up to a specified limit e.g. Ł50 or Ł100. The card number is written on the reversee of the cheque it is guaranteeing.
6. DEBIT CARDS
They are a means of payment accepted in lieu of a cheque thus no exchange of cash or cheques is required. The transactions debit directly the holder's account directly at the point of sale.
Some debit cards function as cash cards or cheque guarantee cards and, used together with EFTPOS systems, they transfer the amount owed by the customer to the retailer directly from the customer's account to the retailer's account.
7. EFTPOS i.e. Electronic Funds Transfer at Point of Sale
It is a system of debiting at a purchase price from the customer's bank or credit card account by means of a computer link between the bank or credit card company and the checkout till.
The customer's plastic card, which has a magnetic strip containing relevant electronic information, is "wiped" through a terminal reader in retail premises. The electronic link makes it possible to credit the retailer's account and debit the customer's account.
The transfer of funds from the bank or credit card company usually does not exceed 48 hours.