CAIE IGCSE Economics 3.1 Money and Banking Topic Practice

Identify two ways central banks differ from commercial banks.

Award one mark for a characteristic of the central bank such as:

- in the public sector / owned by the government

- operate monetary policy

- main objective is usually price stability

- hold the accounts of the government

- lend to governments and sometimes commercial banks

- manage foreign exchange rate.

Award one mark for a characteristic of a commercial bank such as:

- usually in the private sector / owned by individuals

- provide services for consumers

- main objective is profiting maximization or growth

- hold the accounts of firms and households

- lend to households and firms

- buy and sell foreign currency to firms and households.

2

If more than two ways are given, consider the first three.

The second mark must be a linked difference and not a negative comment e.g. central bank controls money supply, but commercial banks do not, only gets one mark.

Logical explanation which might include:

- generally acceptable ( 1 ) can be used to buy and sell products / acts as medium of exchange (1)

- limited in supply (1) minted by the government (1)

- durable (1) last some time / does not perish / hard to break / made of metal / acts as store of wealth / store of value (1)

- portable ( 1 ) coins can be carried in pockets / bags (1)

- homogeneous (1) all coins of the same value are the same (1)

- divisible ( 1 ) coins have different values / acts as medium of exchange (1).

4

One mark each for two characteristics identified and one mark each for two developments.

If more than two characteristics are given, consider the first three.

Only accept functions of money when used as a development of an identified characteristic of money.

Analyse the services provided to households by commercial banks.

Coherent analysis which might include:

- enable households to save their money (1) provide deposit / time accounts / deposit boxes (1) earn interest (1)

- enable households to make and receive payments (1) provide current / sight accounts (1) credit cards (1)

- lend to households ( 1 ) by providing a loan / overdraft / mortgage (1) to e.g. buy a house / a car (1) pay interest (1)

- give financial advice (1) e.g. on how to manage debt / retirement plans / buy stocks and shares (1)

- arrange insurance (1) e.g. for house / car (1)

- Convert foreign currency ( 1 ) buying / selling goods and service abroad / travelling abroad (1) charge commission (1).

6

Do not reward more than three services as the main assessment objective is analysis, not knowledge and understanding.