Question

1)What are the three functions of money? Can you give an example of each from your daily life?

2)What is fiat money? Why does fiat money have value (or not have value)?

3)Construct a basic T-account for a bank operating under a
fractional reserve system.

4)What is the present value of $15,000 that you will earn five
years from now? (Assume that the risk-adjusted rate of interest is
10 percent. What if you earn the $15,000 two years from now?

Answer #1

The three functions of money are as follows:

**Medium of Exchange -**Money is used as a medium for transactions like buying and selling of goods. In our daily life we purchase using money which is one of the prime functions of money.**Store of value -**Since its value does not change over time, it is stored as asset. For instance our bankings and investments that we do are a good example of store of value.**Unit of account -**It is used to measure the relative worth of goods and services. For example we use money to measure the value of other goods and make the transactions. For instance 1 litre of milk we purchase is measured by the value of money correspondingly.

These are the three basic functions of money with examples.

1.Can ice cream be money? Answer the question
considering the three functions we discussed.
2. What does it mean “fiat money” and why the modern
economies moved to this payments system?
3. What are the small denomination time deposits? Why
are they in M2 and not in M1?
4. Calculate the deposit multiplier in the case of a
reserve requirement of 15 percent.
5. What is the relation between the reserve requirement
and the deposit multiplier? Discuss and provide one...

Please provide a real-life example of what you learned. It can
be a present value, future value, number of periods, interest rate
(growth rate), or payment problem. You need to state the problem
and then solve the problem. The problem has to come from our daily
life as a student

Please provide a real-life example of what you learned. It can
be a present value, future value, number of periods, interest rate
(growth rate), or payment problem. You need to state the problem
and then solve the problem. The problem has to come from our daily
life as a student

Your grandfather would like to share some of his fortune with
you.
He offers to give you money under one of the following
scenarios (you get to choose):
1.
$7,250
a year at the end of each of the next
eight years
2.
$49,950
(lump sum) now
3.
$98,650
(lump sum) eight years from now
Calculate the present value of each scenario using
an 8% interest rate. Which scenario yields the highest present
value? Would your preference change if you...

8. Explain the effect of each of the following scenarios
on money supply: (You need to say if money supply increases or
decreases and also how)
a. When the Fed buys treasury bonds from the public
b. When the Fed decides to ease on banks by lowering the
reserve-requirements:
c. When the Fed decides to pay interest on excess reserves of
banks:
d. When the Fed sells treasury bonds to the public e.When the
Fed raises the discount rates
9....

Time Value of Money
Assume that you are nearing graduation and that you have
applied for a job with a local bank. As part of the bank’s
evaluation process, you have been asked to take an examination that
covers several financial analysis techniques. The first section of
the test addresses the time value of money. See how you would do by
answering the following questions.
Required
1. The basic present value equation has four parts. What are
they? Explain. ...

Using Excel: Your goal is to have $5,000 in five years from now,
and your mother help to get started and give you $500 now. From
your income you plan to make five additional deposits, one at the
end of each year. The first deposit from your money is made at the
end of the first year. If you deposit the money in a bank that pays
7% interest, how much must your annual deposit be.

What is the present value of $200 to be received two years from
now, with an interest rate of 5%?
You deposit $2000 today at 6% interest. How much will you have
in 5 years?
You invest $5,000 today. You will earn 8% interest. How much
will you have in 4 years?
You have $450,000 to invest. If you think you can earn 7%, how
much could you accumulate in 10 years?
You deposit $300 each year for 15 years...

5A-1
FV CONTINUOUS COMPOUNDING If you receive $15,000 today and can
invest it at a 6% annual rate compounded continuously, what will be
your ending value after 15 years?
5A-2
PV CONTINUOUS COMPOUNDING In 7 years, you are scheduled to
receive money from a trust established for you by your
grandparents. When the trust matures there will be $200,000 in the
account. If the account earns 9% compounded continuously, how much
is in the account today?
5A-3
FV CONTINUOUS COMPOUNDING...

1.What are the three purposes of money? .Which is the most
important of the three and why?
a.My parents were married in Lynnfield in 1970 and were given a
china set from England. I have that set today in almost brand new
condition and a $5 bill. Which is worth more and why?
b.Which is more liquid and why?
2.Why will M1 never have as much money as M2?
a.Is M1 or M2 more liquid?
b.Which is more liquid and...

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