AIM: WHY DOES MONEY HAVE VALUE?

Do Now: Brainstorm the functions or uses of

money.

THREE USES OF MONEY

• Medium of exchange

• Standard of value (unit of account)

• Store of Value

Six Characteristics of Money

Durability Portability Divisibility Uniformity Limited Supply Acceptability

Sources of Money’s Value

Commodity Money

Representative Money

Fiat Money (legal tender)

Functions of Financial Institutions

Storing Money

Saving Money Savings accounts Checking accounts Money Market accounts Certificates of deposit (CDs)

Functions of Financial Institutions

Loans (story of Goldsmiths) Mortgages Credit Cards Simple and Compound Interest Banks and Profit

Types of Financial Institutions

Commercial Banks Savings and Loan Associations Savings Banks Credit Unions Finance Companies

Electronic Banking

Automated Teller Machines Debit Cards Home Banking Automatic Clearing Houses Stored Value Cards

Will the U.S. eventually become a “cashless” society?

Yes or No

Regulation of Banks and Financial Markets

Creation of the Federal Reserve (1913) Response to Panic of 1907 Central Banking System Federal Reserve Board (Board of Governors) 12 Regional Banks Central Bank Establish Monetary Policy To maintain the stability of the financial

system and contain systemic risk in financial markets

Regulation of Banks and Financial Markets

Securities and Exchange Commission (SEC) 1913 Response to stock market crash of October

1929 Great Depression Regulates stock market

Regulation of Banks and Financial Markets

Banking Act of 1933

Glass-Steagall Limited commercial bank involvement in stock market investments

Too risky in light of stock market crash

Also created FDIC (Federal Deposit Insurance Corportation)

Regulation of Banks and Financial Markets

Trend towards deregulation pushed for by banking industry

Intensive lobbying Revolving Door Savings and Loans crisis (1980s) Bailout Repeal of Glass-Steagall in 1999

Subprime Mortgage Crisis of 2008

Increase in percentage of subprime mortgages

Banks assuming greater risk Adjustable rate mortgages Decline in home prices Borrowers have difficulty refinancing

mortgages Rates go up and people walk away from

homes Default and foreclosure Precipitates Great Recession