CH2_3_Transaction Modes & Money
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Questions and Answers

What happens in Transfer Mode when a Bank Account transaction occurs between two different banks?

  • Both banks cancel the transaction.
  • The accepting bank assumes the liability and exchanges assets. (correct)
  • The initiating bank assumes the liability.
  • Only one bank cancels the transaction

    • When does a Bank Account enter Redemption Mode?

  • When balances are used to repay loans. (correct)
  • When a transfer between banks occurs.
  • When new money is deposited.
  • When notes and coins are deposited.

    • Which type of money is replaced due to wear and does not have a Redemption Mode?

  • Central Bank Account.
  • Electronic transfers.
  • Bank Account.
  • Notes & Coins. (correct)

    • Who issues money in Issuance Mode for Notes and Coins?

    <p>Central Bank.</p> Signup and view all the answers

    What is a key feature of a Bank Account in Transfer Mode?

    <p>It represents a liability to the accepting bank.</p> Signup and view all the answers

    Which mode creates balances by an issuing entity?

    <p>Issuance Mode</p> Signup and view all the answers

    In what mode do balances move between holders?

    <p>Transfer Mode</p> Signup and view all the answers

    Which money type is created when a Bank extends a Loan?

    <p>Bank Accounts</p> Signup and view all the answers

    What is the primary function of Redemption Mode in relation to Central Bank Accounts?

    <p>To extinguish balances upon request</p> Signup and view all the answers

    How are Central Bank Accounts similar to Notes & Coins?

    <p>Both are created in Issuance Mode by the Central Bank.</p> Signup and view all the answers

    Which entity is allowed to hold balances in Central Bank Accounts?

    <p>Only Banks</p> Signup and view all the answers

    Contrary to popular belief, how do Banks lend money?

    <p>By issuing Loans directly credited to accounts</p> Signup and view all the answers

    What occurs in Transfer Mode when the accounts involved are from different banks?

    <p>The banks exchange assets to reflect the change in liability.</p> Signup and view all the answers

    Which characteristic distinguishes Notes & Coins from Bank Accounts?

    <p>Notes &amp; Coins do not enter a Redemption Mode.</p> Signup and view all the answers

    In what manner are balances transferred between public holders in Bank Accounts?

    <p>Within banks’ ledgers during Transfer Mode.</p> Signup and view all the answers

    Which of the following describes a feature of Issuance Mode?

    <p>Balances are created by an issuing entity.</p> Signup and view all the answers

    What happens to Central Bank Account balances in Redemption Mode?

    <p>They are exchanged for physical notes and coins.</p> Signup and view all the answers

    How does the transfer of balances in Bank Accounts primarily occur?

    <p>Via electronic transfers between individuals.</p> Signup and view all the answers

    What is the relationship between Notes & Coins and Central Bank Accounts?

    <p>Both are created by the Central Bank in Issuance Mode.</p> Signup and view all the answers

    In which scenario can banks use their Central Bank Account balances?

    <p>To exchange them for Notes &amp; Coins as withdrawals.</p> Signup and view all the answers

    What is a key characteristic of the Bank Accounts considered in Issuance Mode?

    <p>They are created by an extension of loans.</p> Signup and view all the answers

    What does the term 'Transfer Mode' imply about a money type?

    <p>Balances are reallocated among holders.</p> Signup and view all the answers

    Why do Bank Accounts not strictly rely on the money from deposits?

    <p>Banks create money through loans rather than deposits.</p> Signup and view all the answers

    Study Notes

    Modes of Transaction for Money

    • Three modes of transaction exist: Issuance Mode, Transfer Mode, and Redemption Mode.
    • Issuance Mode: Balances created by an issuing entity.
    • Transfer Mode: Balances reallocated between holders.
    • Redemption Mode: Balances extinguished by the issuing entity.

    Types of Money

    • Notes & Coins:

      • Originates from Issuance Mode via Central Bank printing press.
      • Circulates in Transfer Mode between holders.
      • No longer operates in Redemption Mode since the Gold Standard was abandoned.

    • Central Bank Accounts:

      • Act as a “bank account for banks,” created in Issuance Mode.
      • Electronic equivalent of Notes & Coins, held only by banks.
      • Balances recorded in a ledger managed by the Central Bank.
      • Transfers occur between banks to balance retail banking system flows.
      • Banks can redeem balances for physical Notes & Coins or use them to buy assets like Government Bonds, extinguishing that portion.

    • Bank Accounts:

      • Created when banks extend loans to clients, representing Issuance Mode.
      • Primarily operates in Transfer Mode, moving between public Bank Accounts recorded in individual ledgers.
      • Balances can be acquired through:
        • Entering a Loan Agreement resulting in a credited amount.
        • Transactions from other bank accounts, with liability adjustments based on servicing banks.
        • Rare deposits of physical Notes & Coins.
      • Redemption Mode occurs when balances are used to repay loans, extinguishing both the Money and the Loan.

    Overview of Transaction Modes

    • Notes & Coins:

      • Issued by Central Bank.
      • No Redemption Mode available (maximum wear limits).

    • Central Bank Accounts:

      • Issued by Central Bank to banks for asset purchases.
      • Operate exclusively between banks in their Central Bank ledger.
      • Redemption is possible at Central Banks.

    • Bank Accounts:

      • Issued by banks to the public for loans.
      • Transactions occur within banks’ ledgers.
      • Redemption occurs upon loan repayment by the public.

    Clarification of Concepts

    • Understanding these concepts is facilitated through practical examples.
    • Each type of money interacts uniquely within its assigned transaction modes, influencing the banking and financial systems.

    Modes of Transaction for Money

    • Three modes of transaction exist: Issuance Mode, Transfer Mode, and Redemption Mode.
    • Issuance Mode: Balances created by an issuing entity.
    • Transfer Mode: Balances reallocated between holders.
    • Redemption Mode: Balances extinguished by the issuing entity.

    Types of Money

    • Notes & Coins:

      • Originates from Issuance Mode via Central Bank printing press.
      • Circulates in Transfer Mode between holders.
      • No longer operates in Redemption Mode since the Gold Standard was abandoned.

    • Central Bank Accounts:

      • Act as a “bank account for banks,” created in Issuance Mode.
      • Electronic equivalent of Notes & Coins, held only by banks.
      • Balances recorded in a ledger managed by the Central Bank.
      • Transfers occur between banks to balance retail banking system flows.
      • Banks can redeem balances for physical Notes & Coins or use them to buy assets like Government Bonds, extinguishing that portion.

    • Bank Accounts:

      • Created when banks extend loans to clients, representing Issuance Mode.
      • Primarily operates in Transfer Mode, moving between public Bank Accounts recorded in individual ledgers.
      • Balances can be acquired through:
        • Entering a Loan Agreement resulting in a credited amount.
        • Transactions from other bank accounts, with liability adjustments based on servicing banks.
        • Rare deposits of physical Notes & Coins.
      • Redemption Mode occurs when balances are used to repay loans, extinguishing both the Money and the Loan.

    Overview of Transaction Modes

    • Notes & Coins:

      • Issued by Central Bank.
      • No Redemption Mode available (maximum wear limits).

    • Central Bank Accounts:

      • Issued by Central Bank to banks for asset purchases.
      • Operate exclusively between banks in their Central Bank ledger.
      • Redemption is possible at Central Banks.

    • Bank Accounts:

      • Issued by banks to the public for loans.
      • Transactions occur within banks’ ledgers.
      • Redemption occurs upon loan repayment by the public.

    Clarification of Concepts

    • Understanding these concepts is facilitated through practical examples.
    • Each type of money interacts uniquely within its assigned transaction modes, influencing the banking and financial systems.

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    Description

    Explore the three modes of money transactions: Issuance, Transfer, and Redemption. Understand the types of money, including notes and coins, central bank accounts, and the roles they play in modern banking. This quiz will test your knowledge of these essential concepts in monetary systems.

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