The Evolution of Money
The evolution of money has developed so that money can have many more functions than just having value. The functions that money has acquired are divisible, durable, portable, stable value, and uniformity. However, many different forms of money didn’t necessarily have the same functions all of the time. Infact that was a large problem with money for a long time with dealing in markets. But eventually people figured out how to make money with more functions and now markets work well to provide people with financial intermediaries.
Financial intermediaries have many different values with regard to how people spend or save their money. These three financial intermediaries are depository institutions, contractual savings institutions, and investment intermediaries. Depository and contractual savings institutions have low risk and liquidity. This is where people are able to put their money in where they don’t want to part with it or invest it. This avoids the risk of losing the money with a failed investment. Conversely, investment
The first financial intermediary is the depository institutions. This institution gets money out of the people by simple offering depository accounts. These accounts are checking’s, savings, and CD’s that allow people to safely put their money into the account. These accounts are offered by three different types of banks. They can be offered by commercial banks, savings and loans, and mutual savings banks. Also, credit unions are a form of depository institution that is an in house bank that services one particular bank.
A depository institution performs three distinct mortgage market functions. The first function is a mortgage origination. This is the process that mortgage debt is created and it helps to protect the depository institution. The second function is called a mortgage holding which refers to the activity of institutions or other investors who actually hold the mortgage debt. The third type of a mortgage market function is mortgage services. This refers to a series of activities that actually involve the collection of mortgage debt on a monthly basis and sends the money to the holder. Another activity that this function performs is confirmation that the person in debt has the proper property insurance and is paying the property taxes. And obviously, the third function is to carry out the process of foreclosing on loans that default. These are some of the actions that are performed within a depository institution that allow people to loan money. This idea of mortgage helps to keep those idle dollars in circulation so that the money isn’t just sitting in the bank. This allows for more investment with those idle dollars and the bank can operate better by getting those idle dollars back into the whole money system.
Contractual savings institutions are major competitors of banks. These institutions are competitors because they invest in many various things. Some of the things that they invest in are shares, bonds, they make direct loans, and they also act like a rather large depository institution within the banking system. Competition between contractual savings institutions and banks are more likely to occur then completer to banks. This due to the fact that banks simply don’t want to have debt maturity to be complimentary. Rather, banks would simple increase their short-term loans and that would help to give them a comparative advantage. They have a better advantage than contractual savings institutions because banks are better able to monitor their firms, instead of the direct loans that are provided by the institutions.
The third and final type of financial intermediary is the investment intermediaries. They involve more risk than putting your money in depository or contractual savings institutions. You are investing your money instead of saving it and keeping it safe in a bank. Typically, investment intermediaries are for people who are more willing to part with their money rather than save. There are many different types of investment intermediaries that are readily invested into and bought and sold in the real world today.
