Financial Markets and Institutions

Chapter 3 Essay

Answer each of the essay questions briefly. 

1. Where does the value of fiat money come from if it is not backed by gold or silver?

 The value of fiat money comes from the relationship between supply and
demand and the stability of the government issuing it rather than the
commodities like gold or silver. Fiat currencies are issued by the government, so
the authority of the government decrees their value. It is also not representative
of another asset or financial instrument.

2. Give 3 advantages of using checks to pay for goods and services instead of physical
coins and currency.

 Some advantages of using checks to pay for goods and services instead of
physical coins and currency are; checks make budgeting easier, aren’t deposited
immediately, and can’t be used by thieves. Budgeting is easier if we use checks
in transactions because we can keep a record of our checkbook and overview all
our spending in one convenient place. It would take two or more days for checks
to be deposited, so we can have a day or two to make sure we have the money
in your account to cover the check. Thieves would hesitate to steal checks
because they cannot cash it, and it is traceable, which would be a hassle for
them.

3. Write about a transaction you did using electronic money/electronic payment. Give 2
advantages and 1 disadvantage of the availability of electronic money to pay for goods
and services instead of physical coins and currency. You give advantages and
disadvantages that affect you personally or that effect the economy.

 Since I made an account for my mother in GCASH, I started to use it for our
convenience through online transactions. I have been using GCASH to transfer
and receive money for school payments and allowances. I also have also
experienced using it to pay for deliveries of goods. One of the advantages of the
availability of electronic money is that we can have an easier transactions with
others without the need to meet face-to-face. It is very important nowadays,
especially during these times of pandemic. Through e-money, we can save time
and money. The disadvantage of using electronic money is that it is prone to
forgery. Some hackers can infiltrate systems and gain personal information about
users, which is very alarming to our economy.