Money And The External Sector Of The Economy

Money and the External Sector of the Economy
What is money?
There are many definitions of money nowadays: We can define Money as an asset, as a measure of value, as an element that it is acceptablein transactions and in the settlement of debts.
Money can originate in the form of Bills and Deposits. (Loans create the deposits).
What is a Bank?
A bank is a factory of deposits. A bank is aninstitution that lends money or provides credit to its customers. Bank lending is important because it finances a great deal of spending and it also adds to the country´s stock of money in the form ofdeposits. These deposits are created when the customers deposit money into their accounts.
Credit creation is the process by which bank loans create deposits.
Essential Banking Business: in longterm perspectives time is essential, Assets are greater than liabilities, if individuals use all their deposits very quickly is dangerous for the bank.
Types of Banks
* Commercial banks: The termcommercial carries the significance that banking is a business like any other business; this means that the basic objective of a commercial bank is to make profits. Commercial Banks must keep in handplenty of liquid assets because these assets can be converted into cash.
* Central Bank: Does not make any business with individuals, its aim is not to make a profit. The central bank lies at thecentre of the banking system of a country and we can call it the bank of bankers because every commercial bank has an account with the central bank. Banks get money from the central bank at a verylow rate.

In principle, there is an inverse relationship between rate of interest and the prices of financial assets. When the rate of interest goes down the prices of financial assets tend to go upand vice versa.

Does advance capitalism generate more liquid funds available for investment than opportunities for profitable investment in the ground floor? YES!!!

Financial Asset
Financial...