Today’s Schedule – 11/28

• PPT: Money Supply & Banking• Rdg: Pitfalls of Credit Card Debt• Bonus Quiz: Money• HW:• Read 17.2/17.3• Start Studying for Unit 5 Test - FRIDAY

Supply of Money

• Money Supply: All money available in the U.S. economy–Divided into two (2) categories:

M1 and M2

M1

• Assets that are liquid –Can easily be used as/converted to cash

• Money held outside of bank vaults–In circulation

• Checking accounts• Traveler’s checks

M2

• Funds that cannot be used directly as cash–Can be converted as cash fairly easily

• Deposits in savings accounts

Functions of Financial Institutions

1. Store MoneyStore money in vaultsInsured by government against theft2. Saving MoneyBanks offer: savings accounts, checking

accounts, money market accounts, certificates of deposits (CDs)

Savings/Checking Accounts

• For people who need to make frequent withdraws• Small annual interest rates

Money Market Accounts

• Fund that pools money from small savers to purchase short term government and corporate securities• Can only write a limited number of

checks per year typically under a certain amount of money• Interest rates fluctuate

CDs

• Guaranteed interest rate over a specific amount of time• Funds cannot be withdrawn until set time

is up–If you do there is a penalty

Functions of Financial Institutions

3. Loans -Banks lend money in order to make

interest = profits for banks -When someone defaults on their loan,

banks lose money

Functions of Financial Institutions4. MortgagesLoan to purchase real estateRepaid over 15-40 years5. Credit CardsCard issuer immediately pays for goodCard holder repays “loan” monthly

-Accrue interest if not paid monthly

Interest

Principal: amount of money borrowedInterest: amount paid on borrowed moneyCompound Interest: Interest paid on both

principal and accumulated interest

Types of Financial Institutions1. Commercial BanksTypically provide services to businesses2. Savings and Loan Associations Originally just for housing loansNow very similar to commercial banks3. Savings BanksSmaller transactions than commercial

banks

Types of Financial Institutions4. Credit UnionsCooperative lendingUsually for a particular group of peopleHigher interest rates5. Finance CompaniesInstallment loans to customersOne time, high cost purchases like a carHigh interest rates

Electronic Banking• ATMs: computers used to deposit

money, withdraw cash, transfer funds and obtain account info• Debit Cards: Used to withdraw money–Used like a credit card

• Home Banking: Online banking• Stored Value Cards: Phone/copying/

dining cards with set amount of money