Introduction to Finance

• Investments 
Money is the fundamental store of wealth. While we 
often think of money in terms of coin and currency, the money supply 
also includes demand and other checkable deposits. Some defi nitions 
of the money supply also include savings accounts, time deposits, and 
money market mutual funds. An individual’s net worth consists of 
real assets, such as automobiles and houses, mutual fund shares held, 
and holdings of the various types of money, less any debts.
Money markets are where debt securities with maturities of one 
year or less are originated and sometimes traded. Major money mar-
ket securities include Treasury bills, commercial paper, negotiable 
certifi cates of deposit, banker’s acceptances, repurchase agreements, 
and federal funds. 
• Financial Management 
Business fi rms rely on fi nancial institu-
tions to help them raise funds from the savings of individuals. Busi-
nesses need money to conduct their day-to-day operations and need an 
effi
cient monetary system for collecting funds from customers and for 
paying their own bills in a timely fashion. Some businesses make use 
of money market securities for short-term investment purposes when 
they have surplus funds. Other businesses borrow in the money mar-
kets to help fi nance their short-term debt needs. Some business fi rms 
issue, while others invest in, commercial paper and repurchase agree-
ments. Other business fi rms may hold their money market investments 
in Treasury bills or negotiable certifi cates of deposit. While money 
market securities are originated in primary markets, some trade actively 
in secondary markets. 

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C H A PT E R 2 Money and the Monetary System
Key Terms
automatic transfer service (ATS) 
accounts
banker’s acceptance
barter
bimetallic standard
bitcoin
commercial paper
credit cards
credit money
currency exchange rate
debit cards
defi cit economic unit
deposit money
digital currency
euro
federal funds
fi at money
fi nancial assets
full-bodied money
gross domestic product (GDP)
individual net worth
infl ation
liquidity
medium of exchange
M1 money supply
M2 money supply
money
money market mutual funds 
(MMMFs)
money market securities
negotiable certifi cate of deposit 
(negotiable CD)
purchasing power
real assets
representative full-bodied money
repurchase agreement
savings-investment process
standard of value
store of value
surplus economic unit
token coins
Treasury bill
velocity of money
Review Questions