CHapter 6 Answers

6
Money
Activity (p. 61)

1 a) and b) The Zimbabwean economy suffered from extortionate rates of inflation
between 2003 and 2009, with inflation reaching 231000000% in July 2008!
This was partly due to the government printing more money in order to try to
reduce its economic problems. However, the currency became worthless so
was abandoned. Without an official currency, the US dollar was the preferred
currency as a unit of value and a store of value.
2 Students own answers. They are likely to consider the main functions of money
when tackling this activity. For example, milk is not a store of value. Cloth is
divisible but not a universally accepted (recognised) medium of exchange, as not
everyone wants cloth. Fish is difficult to divide, so makes a poor unit of account
as money. Cigarettes are not widely accepted, e.g. non-smokers would have little
use for cigarettes.
Activity (p. 62, middle)

Students own answers. These are likely to include the purpose or use of money in
modern society, e.g. to facilitate international trade and exchange. Money is also a
powerful means by which to motivate the workforce.
Activity (p. 62, bottom)

Students own answers. These are likely to include the main problems of barter, e.g.
the need for a double coincidence of wants. In todays modern society, speed and
efficiency are vital to international trade, e.g. internet banking which allows online
transfer of funds or the payment for exports/imports using credit cards.
Exam practice (p. 63)

1 Bartering is the swapping or trading of goods and services in exchange for other
items, using a process of bargaining and negotiation.
2 Functions of money which make bartering ineffective include:
l Medium of exchange not all items used for bartering are widely recognised
or accepted as a medium of exchange. Someone may have a cow to trade
whilst another has a necklace, but neither party want what the other one has.
l Measure of value how much is a cow worth in terms of the necklace?
l Store of value whilst the necklace can be stored for future use, it is rather
more difficult with the cow. As the cow becomes older, its value will drop.
l Standard for deferred payment whilst a cow or necklace might be accepted
as payment today, there is no guarantee that these items will be widely
accepted as a standard for deferred payment to pay off debts in the future.
Note: the above are suggested answers only. Students may take an alternative
approach for which marks should be awarded as appropriate.
Activity (p. 64)

Students own answers.
Activity (p. 65)

Students own answers as shown in their posters.
Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 1

6 Money
Activity (p. 67)

According to Forbes (www.forbes.com/pictures/eddk45iglh/the-worlds-biggest-stock-
exchanges/), the largest five stock exchanges are:
1 New York Stock Exchange
2 NASDAQ
3 Tokyo Stock Exchange
4 London Stock Exchange
5 Shanghai Stock Exchange
Students own answers for the benefits of listing on a large stock exchange, e.g. to
give investors/shareholders confidence to part with their money.

1 An initial public offering (IPO) occurs when a business decides to go public by
selling its shares on a stock exchange for the first time. The IPO enables the firm
to raise much-needed capital for the business.
2 Functions of a stock exchange such as the NASDAQ include:
l raising share capital for businesses ($16 billion in the case of Facebook)
l facilitating company growth
l facilitating the sale of government bonds
l market for trading shares
l safety of transaction boosting confidence in the trading of shares.
Note: award full marks for the clear identification and explanation of any two
functions of a stock exchange.
3 Reasons for Facebook choosing to float (sell) its shares on the NYSE include:
l The NYSE provides a platform for individuals, organisations and governments
to buy shares in Facebook, thus raising share capital for the company.
l The flotation of Facebook shares (the main source of finance for public limited
companies) can raise huge amounts of finance for Facebook to fund its
growth.
l Share ownership can create much wealth for the founders, owners and
investors of Facebook.
l The efficient functioning of the NYSE helps to create business and consumer
confidence in Facebook, further boosting investment opportunities.
Note: accept any other reasonable answer that is given in the context of Facebook.

1 Primary functions of commercial banks such as ICBC and HSBC include:
l accepting deposits from their customers, such as private individuals, business
customers and governments
l making advances (loans) to customers, e.g. overdrafts, loans and mortgages
l credit creation which enables borrowers (or debtors) to gain purchasing power
with the promise to pay the lender (or creditor) at a future time.
Students might choose to look at secondary functions of commercial banks,
such as:
l collecting and clearing cheques on behalf of their customers
l offering additional financial services, e.g. tax advice, foreign exchange and the
buying and selling of shares
l providing money transfer facilities, e.g. transferring money to pay various utility
bills or to an overseas bank account.
Award full marks for any two relevant functions that are accurately described.

6 Money
2 Key functions of the Peoples Bank of China include:

l The sole issuer of bank notes and coins, i.e. it is the only authority that can
print bank notes and mint coins in China. This helps to bring uniformity to and
improves public confidence in Chinas monetary system.
l The governments bank the Peoples Bank of China operates as a banker
to the Chinese government, e.g. making payments for items of government
expenditure or managing public sector debt.
l The bankers bank the Peoples Bank of China acts as the bank for other
banks in the country, overseeing the cash reserves of commercial banks such
as ICBC and HSBC.
l The lender of last resort the Peoples Bank of China will lend to the banking
system in times of financial emergencies, thereby stabilising the countrys
banking system.
Award full marks for any two functions that are clearly explained.
3 The Shanghai Stock Exchange can play a key role in the economic development of
Chinas economy because:
l Multinationals trying to get into China can invest in the country via the
Shanghai Stock Exchange. This helps to create jobs and wealth in the country.
l Chinese companies can float their shares on the Chinese bourse in order to
raise share capital to finance their growth and expansion. This can help to
increase Chinas GDP and global presence.
l Existing companies can use the Shanghai Stock Exchange to raise finance in a
share issue. Again, this helps raise finance to fund the operations of Chinese
firms.
l Share ownership can create wealth for the Chinese investors, thus aiding the
countrys economic development.
Accept any other relevant explanation that is written in the context of Chinas
economic development.

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6

Activity (p. 61)

Activity (p. 62, middle)

Activity (p. 62, bottom)

Exam practice (p. 63)

Activity (p. 64)

Activity (p. 65)

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 1

Activity (p. 67)

Exam practice (p. 68)

Exam practice (p. 70)

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 2

2 Key functions of the Peoples Bank of China include:

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 3

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