Chapter 10Money and Banking
Chapter 10Section 1
Money is anything that serves as a medium of exchange, a unit of account and a store of value
What is Money?
1) Medium of exchange- anything that is used to determine value during the exchange of goods and services
2) Unit of account- a means of comparing the values of goods and services
3) Store of value- something that keeps its value if it is stored rather than used
The Three Uses of Money
The coins and paper bills used as money in a society are called currency.
What is Currency?
1) Durability- Objects used as money must withstand wear and tear
2) Probability- Easy to carry around and transfer
3) Divisibility- Easily divided into smaller amounts
6 Characteristics of Money
4) Uniformity- all units of money must be identical
5) Limited Supply- Federal Reserve System controls supply of money in circulation
6) Acceptability- everyone in economy must be able to exchange the objects that serve as money for goods and services
6 Characteristics of Money
Chapter 10Section 2
In 1913,the Federal Reserve System Act established the Federal Reserve System. The Fed is the nations central bank that creates national currency called Federal Reserve Notes.
History of American Banking
After the Great Depression, the Federal Deposit Insurance Corporation (FDIC) was created to instill trust in banking system. Today the FDIC insures customer deposits up to 250,000 if a bank fails.
History of American Banking
Chapter 10Section 3
The money supply is all the money available in the U.S. economy.
Measuring the Money Supply
Banks perform many functions and offer many services to consumers
1) Store money- its safe and convenient 2) Credit Cards- cards entitling their holders
to buy goods and services based on the card holders promise to pay
Banking Services
3) Saving money- the most common options are:◦ Savings accounts◦ Checking accounts◦ Money Market Accounts◦ Certificates of Deposits (CDs)
Banking Services
4) Loans- Make loans to help new businesses and help established businesses' grow
5) Mortgages- a specific loan used to purchase real estate
Banking Services
Banks make money of interest rates they receive from consumers who have taken loans
Interest is the price paid on the use of borrowed money
How Banks Make a Profit
The rise of computers in banking as increased dramatically
Automated Teller Machines (ATM)- can deposit, withdraw cash and obtain account information
Debit Cards- used to withdraw money from checking account
Electronic Banking
Automatic Clearing Houses (ACH)- transfer funds from customers’ accounts into creditors’ accounts
Home Banking- can check balances or make transfers from home computer
Store Value Cards- have magnetic strips or computer chips with account balance information
Electronic Banking