Chapter 12

Money and

Financial Institutions

Ch 10, 11, 12 - Slide 2

Learning ObjectivesLearning Objectives

1.1.Describe Describe the functions and characteristics of money.

2.2.ExplainExplain the 3 main functions of a bank.

Why It’s ImportantWhy It’s Important

Understanding the way money and financial institutions work is crucial to understanding the economy.

Ch 10, 11, 12 - Slide 3

Money Money Monetary system – G&S are exchanged using money; can then be exchanged for other G&S

Money can be anything that people accept as a standard for paymentEX: In other times and places people have used shells, stones, corn, parrot feathers, and even gopher tails for money

Ch 10, 11, 12 - Slide 4

Functions of Money Functions of Money

Medium of Exchange – rather than barter people exchange money to get the goods and services they want

Standard of Value – Money allows us to place a value on objects (How much does this cost?)

Store of Value – Money holds its value over time…you can also store it and accumulate it to become more wealthy

Ch 10, 11, 12 - Slide 5

Characteristics of Money Characteristics of Money

Scarcity – a limited amount available (value)

Accepted – people have faith in its value

Divisible – can be broken down into smaller pieces/parts

Portable – can be transported easily

Durable – has a long life/does not fall apart

Ch 10, 11, 12 - Slide 6

Banking Banking The banking system is the main type of financial institution, or organization for managing money, in our economy

Banks have three main services 1)storing money, 2)transferring money, 3)lending money

Ch 10, 11, 12 - Slide 7

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• What are three characteristics of money (there are five)?

– Scarcity– Accepted– Divisible– Portable– Durable

Ch 10, 11, 12 - Slide 8

Storing Money Storing Money

A bank account is a record of how much money a customer has put in to or taken out of a bank

Deposit – money put into a bankWithdrawal – money taken out of the bank

Ch 10, 11, 12 - Slide 9

Transferring and Lending Money Transferring and Lending Money -Interest - rate the bank pays you for keeping your money there- electronic funds transfer (EFT) used to move money around by using computer networks

- Collateral – item of value you put up for a loan- Mortgage - a deed to give the property to the lender if the loan is not paid back- Safety-deposit boxes – store valuables

Ch 10, 11, 12 - Slide 10

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• What are the three services banks offer?

– Storing Money– Lending Money– Transferring Money

Ch 10, 11, 12 - Slide 11

HOMEWORK

• Rd. Pages 201-205

• Questions 1-3 on Pg. 205

Ch 10, 11, 12 - Slide 12

Learning ObjectivesLearning Objectives

1.1.CompareCompare the 3 types of banks found in our economy.

2.2. IdentifyIdentify the functions of the Federal Reserve System.

Why It’s ImportantWhy It’s ImportantUnderstanding the way money and financial institutions work is crucial to understanding the economy.

Ch 10, 11, 12 - Slide 13

HOW BANKS DO BUSINESS

Banks are businesses that provide financial services to make a profit.

Ch 10, 11, 12 - Slide 14

Commercial banks - services such as checking and savings accounts, loans, and financial advice

Credit unions offer members a full range of services, including credit cards, checking accounts, and loans

Savings and Loan Associations purpose was to encourage people to save money and make it easier to buy a home.

Types of BanksTypes of Banks

Ch 10, 11, 12 - Slide 15

Other Financial InstitutionsOther Financial Institutions

Mortgage companies provide loans specifically for buying a home or business.

Financial companies offer short term loans to businesses

Insurance companies provide protections against things like fire and theft

Brokerage firms sell stocks and bonds, and other financial services

Ch 10, 11, 12 - Slide 16

The Federal Reserve SystemThe Federal Reserve System

The Federal Reserve System (or Fed) is the central banking organization in the United States

• Set up in 1913 to end the periodic financial panics that occurred during the 1800s and early 1900s

Ch 10, 11, 12 - Slide 17

Functions of the FedFunctions of the Fed

1. Clearing Checks

2. Acting as Federal Gov’t’s fiscal agent

3. Supervising member banks

4. Regulating the money supply

5. Setting reserve requirements

6. Supplying paper currency

Ch 10, 11, 12 - Slide 18

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• What is the Federal Reserve?

– The central banking organization of the United States

Ch 10, 11, 12 - Slide 19

HOMEWORK

• Review Key Concepts – Pg. 206

• Questions 2-5