Essay Econ 222

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1. State and explain any two advantage of a monetary economy. State and explain any three functions of money. In monetary economy is an economy where goods and services are exchanged for money. It can avoid double coincidence of wants, for example, one person is willing to use a bag of rice to get a bag of tea; another person is willing to use a bag of tea to get two apples. These two parties can not trade easily for their goods because in a barter economy people have to find exact goods and services to trade with. People realized use money to purchase goods and services that will save more time to find exact goods and services they want, and convenient for people. The monetary economy also allows specializations, for example, many …show more content…
Repurchase agreements are that an agreement with a commitment by the seller or dealer to buy a security backs from the customer at a specified rice at a designated future date. It represents a collateralized short-term loan for which, where the collateral may be a Treasury security, money market instrument, federal agency security, or mortgage security. From the customer’s perspective, the deal is reported as a reverse agreement. For example, a bank sell Treasury bill for a higher price to an investor, then the investor have to pay to the bank within a time period; the bank will buy Treasury bill back at a lower price from the investor, the bank pay less and make profit on it. Mark-to-market arrangement for futures contract is can be used to hedge a position in the future and is often used as a tool to speculate in various markets. It is also a forward contract that traded on the future exchange. A future is a standardized contract in where the settlement type, date and price are mentioned. If spot price rises, sellers pay buyers in cash for the change in price, if spot price falls, buyers owe sellers, if a futures trader losses too much, more money will need to be put in the margin account. There are firms A and B, if a firm raises price and trade efficiently. They have to maintain their balance to continue trading or they will replace by another firm.

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