Three World Financial Crises: A Full Account

To comprehend the financial crises that the world has recently been dealing with you need to understand what money is, so I start there. I go on to examine how banks provide and borrow money. However look at the vital part played by the ‘bond market’ which can be used by governments and companies to raise the cash to cover their expenditure. There after, I describe the financial relationship between a Govt which has to spend and raise money and their Central Bank which helps them to undertake it. Finally I look at how a monetary climate changes and why the world has been experiencing a series of financial crises. Roberto Santiago

Funds, Currencies, Exchange Costs

Funds is denoted in stock markets which are handled by way of an authorities. In the US it is the dollar; in the eurozone of 18 governments it is the euro; in China it is the rimini; in the UK it is the pound. The pound is an anomaly since it is not manipulated with a single federal government (more about this later).

Within a country (or zone in the circumstance of the euro) there is a knowable amount of money in blood flow. The amount is determined by the meaning of money that is used. ‘M0’ is the narrowest of the number of definitions: it is the total amount of the particular money in notes and loose change that is owned by all folks and organizations, whether in their billfolds or in their safes, including, in the UK, the safes of financial institutions. Other definitions include kinds of money such as debris in bank current medical data, deposits in savings data files with banks or other institutions, and term debris, only repayable on the specific date.

Money in a specific currency is an item (like copper, wheat, essential oil, gold) which is often bought or sold with another foreign currency at a rate identified by the market. Just like any commodity, the price is higher if you are buying than if you are selling. As a result a bank might quotation an exchange rate of 1. 6 US$/GBPound for buying dollars with pounds and 1. 5 US$/GBPound for selling dollars in substitution for pounds.

The existence of money and money markets makes trading in goods and services easy and causes increase in wealth for individuals and nations. Without money there is a foot brake on transactions. For example, a bricklayer who desired to buy a couple of shoes would have to find a footwear maker who wanted some bricks laid (the process called barter). If they can not find one another they are both the lesser. Because money exists, the bricklayer can make money putting bricks for anyone and get goods and services from anybody that has got what he wants.

Lending, Asking for, Commercial Financial institutions

Once money is accepted as repayment for services and goods, individuals commence to accumulate lender notes and coins. They will desire a bank to keep it safe until they are ready to use it. Some owners involving have more money than they want while others have less. Therefore it becomes useful for pairs of people to agree that one should lend money to the other. Just as money lubricates the exchange of goods and services between buyers and vendors, so banks lubricate the use pounds, bringing jointly lenders and borrowers. The lender usually requires the borrower to pay back again a greater sum than they have borrowed, the additional being the ‘interest’.