E-Money and Electronic Payments System Quiz

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Questions and Answers

What is the main characteristic of commodity money?

Difficult to exchange for goods

Heavy and hard to transport (correct)

Backed by a government

Easily transportable

Why might an individual be willing to save their cigarettes in the context provided?

Because they believe in smoking cessation

Due to the belief that cigarettes can be exchanged for other goods in the future (correct)

Because they enjoy collecting cigarettes

As a way to increase their smoking habits

What is a disadvantage of electronic money as mentioned in the text?

Heavy and hard to transport (correct)

Difficult to use for online transactions

Can lead to privacy concerns

It is subject to counterfeiting

In the evolution of the payments system, what is likely to precede the use of paper currency?

Commodity money Signup and view all the answers

What is declared legal tender by governments but is not convertible into coins or precious metals?

Fiat money Signup and view all the answers

Legally, what must governments do when paper currency is decreed as legal tender?

Mandate its acceptance for all transactions Signup and view all the answers

Which of the following best describes how recent financial innovation has impacted the Federal Reserve's job of conducting monetary policy?

Made it more difficult by introducing uncertainty about what to consider money Signup and view all the answers

As the pace of financial innovation quickens, how does defining money become?

More difficult Signup and view all the answers

What are monetary aggregates?

Measures of the money supply reported by the Federal Reserve Signup and view all the answers

Which is the narrowest monetary aggregate reported by the Fed?

M1 Signup and view all the answers

What does the currency component of the U.S. M1 money supply include?

The hands of the nonbank public Signup and view all the answers

What are the components of the U.S. M1 money supply?

Currency plus travelers checks plus money market deposits Signup and view all the answers

Which of the following is considered a form of e-money?

Stored-value card Signup and view all the answers

What is a smart card equivalent to in terms of traditional currency?

Cash Signup and view all the answers

Why has the paper payments system not been completely replaced by electronic payments systems?

Transportation costs Signup and view all the answers

What slows down the transition to a system where all payments are made electronically?

Commodity money driving out paper money Signup and view all the answers

Which payment method is NOT classified as e-money?

Paper checks Signup and view all the answers

What differentiates e-money from traditional physical currency?

Requirement for physical storage Signup and view all the answers

Study Notes

Commodity Money

Commodity money has intrinsic value, meaning it has value even outside of its use as money.

Saving Cigarettes

Individuals may be willing to save cigarettes in a context where cigarettes are used as a form of money because they represent a store of value that can be used for future transactions.

Disadvantage of Electronic Money

A disadvantage of electronic money is the risk of system failure or hacking, which could lead to the loss of funds.

Preceding Paper Currency

The use of paper currency is likely to be preceded by the use of precious metals as a form of money.

Legal Tender

Fiat money is declared legal tender by governments, which means it is accepted as a valid form of payment for debts and taxes. However, it's not convertible into coins or precious metals.

Government Obligations

When paper currency is decreed as legal tender, governments must legally accept it as payment for taxes and other public dues.

Financial Innovation's Impact on Monetary Policy

Recent financial innovation has made it more difficult for the Federal Reserve to conduct monetary policy, as it becomes harder to measure the money supply and predict the impact of policy changes.

Defining Money

Defining money becomes increasingly challenging as the pace of financial innovation quickens, due to the emergence of new forms of payment and financial instruments.

Monetary Aggregates

Monetary aggregates are measures of the money supply that represent a particular definition of money.

Narrowest Monetary Aggregate

The narrowest monetary aggregate reported by the Fed is M1.

Currency Component of U.S.M1 Money Supply

The currency component of the U.S.M1 money supply includes physical currency like paper bills and coins.

Components of U.S.M1 Money Supply

The components of the U.S.M1 money supply include:
- Currency
- Traveler's checks
- Demand deposits
- Other checkable deposits

Form of E-Money

Stored-value cards are considered a form of e-money.

Smart Card and Traditional Currency

A smart card is equivalent to a prepaid debit card in terms of traditional currency.

Persistence Of Paper Payments

The paper payments system has not been completely replaced by electronic payments systems due to factors like:
- Lack of access to technology in some areas
- Security concerns
- Resistance to change

Transition to Electronic Payments

The transition to a system where all payments are made electronically is slowed down by factors like:
- Infrastructure development
- Consumer adoption
- Security concerns

Non-E-Money Payment Method

Credit cards are classified as non-e-money payment methods.

Differentiating E-Money

E-money is differentiated from traditional physical currency because it exists solely in electronic form and does not have intrinsic value.

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Description

Test your knowledge on e-money and electronic payments systems with questions from Mishkin's 'The Economics of Money, Banking, and Financial Markets, 9th Edition'. Identify forms of e-money, understand the concept of smart cards, and learn about the advancements in electronic payments systems.