OxfordAQA International GCSE Economics: Money and the financial sector (9214) – Revision Notes

These notes condense sections 3.2.5.1 (the role of money) and 3.2.5.2 (the role and importance of the financial sector) of the OxfordAQA International GCSE Economics specification (9214), first teaching September 2023, first examined May/June 2025. For full explanations and longer worked examples, read the study guide. Test yourself with the practice questions. Related pages: fiscal and monetary policy revision notes, course hub, checklist and free diagnostics.

All figures are invented. Countries and firms are illustrative.

Key definitions

Term	Meaning
Money	Anything people will accept in exchange for goods, services and repayment of debts
Barter	Swapping goods directly, without money
Liquidity	How easily and quickly an asset can be spent without losing value
Central bank	The government-backed institution at the head of the banking system
Commercial bank	A private firm that takes deposits and makes loans
Financial sector	The institutions that move funds from savers to borrowers
Policy rate	The interest rate set by the central bank to guide other rates
Bank run	Many depositors withdrawing at once because they fear the bank will fail

3.2.5.1 The four functions of money

Function	One-line meaning	Example
Medium of exchange	Used by both sides to complete a purchase or sale	A shop takes aru for a loaf
Unit of account	The measure in which prices and debts are stated	Every good is priced in aru
Store of value	Spending power can be kept for later	Savings in a bank account
Means of deferred payment	Payment can be made later for what you get now	Rent paid at the end of the month

Use the function that matches the scenario. A question about a price tag is about unit of account, not medium of exchange.

Money is more than notes and coins

• Balances in bank accounts are accepted as payment, so they count as money.
• Broader measures include savings deposits, which can be turned into spending money.
• Order of liquidity: cash, then current accounts, then savings deposits, then property.
• Most payments today are card or transfer, so notes and coins are a small share.

Worked reminder. Country X has 9 bn units of notes and coins in a broad total of 120 bn. Share = 9 ÷ 120 × 100 = 7.5%. The other 92.5% is money held in bank accounts.

Barter reminder. Barter with 3 goods needs 3 × 2 ÷ 2 = 3 exchange rates. With 8 goods it needs 8 × 7 ÷ 2 = 28. With money, 8 goods need only 8 prices.

Store of value reminder. Holding 1,500 units as cash for a year with 5% inflation leaves 1,500 ÷ 1.05 = 1,428.57 in today’s prices, a loss of 71.43. If savings earn 4% while inflation is 3%, the real return is (1.04 ÷ 1.03 − 1) × 100 = 0.97%.

3.2.5.2 The financial sector

Central bank

Role	What it does	Chain of effect
Influencing interest rates	Sets the policy rate, which guides rates banks charge and pay	Rate falls, borrowing is cheaper, spending and investment rise, aggregate demand rises
Ensuring stability	Supervises banks, sets rules on funds banks must hold, can lend to a bank short of cash	Confidence protected, deposits safe, lending continues

Method for an interest-rate effect, in steps:

1. State the direction of the policy rate.
2. Say how the rates for borrowers and savers move.
3. Say how consumers and firms respond (spend, borrow, invest, save).
4. Say what happens to aggregate demand.
5. Add a limit, such as slow effects or low confidence.

Worked reminder. A firm has an 80,000 unit variable loan at the policy rate plus 1.5 points. The policy rate falls from 5% to 4.5%. Loan rate falls from 6.5% to 6.0%. Interest falls from 80,000 × 0.065 = 5,200 to 80,000 × 0.06 = 4,800, a saving of 400 a year.

Stability reminder. A bank has loans of 800 and own funds of 40.

• If 5% of loans are not repaid, the loss is 800 × 0.05 = 40. Own funds fall to 0.
• If 4% are not repaid, the loss is 32. Own funds fall to 8 and the bank survives.

That is why rules on own funds matter.

Commercial banks

Role	Explanation
Serve savers	Safe place for money, interest, accounts and payment services
Serve borrowers	Loans for homes, education and business
Help fund investment	Lend savers’ money to firms, turning saving into investment
Make a profit	Earn the gap between the rate charged on loans and the rate paid on deposits

Worked reminder. A bank takes in 800 of deposits and pays 1.5%, so it pays 800 × 0.015 = 12. It lends 600 at 5.5% and receives 600 × 0.055 = 33. Gross interest margin = 33 − 12 = 21 before costs.

Loan reminder. A firm borrows 30,000 at 6% simple interest for 2 years. Interest = 30,000 × 0.06 × 2 = 3,600. Total repaid = 33,600, or 33,600 ÷ 24 = 1,400 a month.

Other institutions

Institution	Role
Insurance company	Pools premiums from many to pay the few who suffer a loss
Pension fund	Collects savings during working life and invests them to pay retirement income
Stock market	Lets firms raise funds by selling shares and lets investors trade them
Credit union or similar	Member-owned saving and lending, often on a small scale

The specification does not name particular institutions in this part, so know the idea (moving funds, spreading risk) and be ready to use any sensible example.

Insurance reminder. 500 policyholders each pay 40, so premiums are 500 × 40 = 20,000. One in 25 claims, so 500 ÷ 25 = 20 claims. At 800 each, claims are 16,000. That leaves 4,000 for costs and profit.

Shares reminder. A share bought at 12 pays a dividend of 0.60. Yield = 0.60 ÷ 12 × 100 = 5%. If the price falls to 11, the change is (11 − 12) ÷ 12 × 100 = −8.33%.

Importance to consumers, producers and government

Group	Why money and the financial sector matter
Consumers	Buy and save without barter, borrow for large purchases, insure against loss
Producers	Price goods, pay wages, borrow to invest, raise funds through shares
Government	Collect taxes, borrow by selling bonds, use interest rates and a stable system to manage the economy

Must-know distinctions

• Central bank versus commercial bank: the central bank sets the policy rate and supervises; commercial banks serve the public with accounts and loans.
• Unit of account versus medium of exchange: one measures value, the other is used in payment.
• Store of value versus deferred payment: one carries spending power forward in time, the other lets you pay later.
• Nominal versus real: a rise in money value is not a rise in spending power if prices rise as much.

Quick self-test

1. List the four functions that money performs.
2. Notes and coins are 9 of a 150 total. Find their share.
3. How many exchange rates does barter need with 6 goods?
4. Name the function when a shop marks every item in the local currency.
5. Why is a savings deposit counted as money in a broad measure?
6. Loan interest is 7% on 60,000 for a year. The policy rate rises 1 point and the pass-through is full. Find the extra interest.
7. State two roles of a central bank.
8. A bank lends 900 at 5% and pays 1,200 of deposits 1%. Find the gross margin.
9. Give two reasons a firm uses a commercial bank when investing.
10. How does insurance help a household?

Answers

1. Deferred payment, store of value, unit of account and exchange.
2. 9 ÷ 150 × 100 = 6%.
3. 6 × 5 ÷ 2 = 15.
4. Unit of account.
5. It can be turned into spending money, even if less quickly than a current account.
6. 60,000 × 0.01 = 600.
7. Influencing interest rates; ensuring stability of the financial system.
8. Interest received = 900 × 0.05 = 45. Paid = 1,200 × 0.01 = 12. Margin = 33.
9. It can lend the funds now, and the firm repays over time from the extra output.
10. It replaces a possible large loss with a small known payment.

Where marks are usually lost

• Writing that money is only notes and coins.
• Naming a function but not linking it to the scenario given.
• Mixing up the central bank and a commercial bank.
• Stating that rates change spending without saying how borrowers and savers are affected.
• Skipping the step from lower spending to lower aggregate demand.
• Treating deposits as the bank’s own money.
• Giving a one-sided answer to an evaluate question.
• Forgetting the working in a calculation, or leaving out the unit.

Official syllabus

OxfordAQA International GCSE Economics (9214), specification version 1.0, for exams May/June 2025 onwards, published by OxfordAQA. Sections 3.2.5.1 and 3.2.5.2.