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Vocabulary

Vocabulary. Currency- Coins and paper bills used to purchase goods/services. Certificate of Deposit- Earns a higher interest rate than a savings/checking account but you are unable to have access to your money for a set period of time

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Vocabulary

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  1. Vocabulary • Currency- Coins and paper bills used to purchase goods/services. • Certificate of Deposit- Earns a higher interest rate than a savings/checking account but you are unable to have access to your money for a set period of time • Stocks- Ownership shares of a corporation that can be bought and sold • Monetary Policy- Conducted by “The Fed”, it is the increasing or decreasing of the money supply. • Fed- The national bank of the United States.

  2. Review • How are American Anti-Trust Laws an example of a mixed-market economy? • What is an oligopoly? • What is a conglomerate? • What is the difference b/w a horizontal and vertical merger? • How is a corporation able to raise more capital than a partnership, cooperative or sole proprietorship?

  3. Warm Up • What does Stewie want so badly?

  4. Money and the Banking System

  5. Why does money have value? • We are absolutely certain that someone else will accept its value as well. • Medium of Exchange • Money can be exchanged for any good or service

  6. Functions of Money • Medium of Exchange • Barter System • People had to trade goods or services they possessed for goods or services they wanted • Very inconvenient • This caused the creation of money to use for a medium of exchange • Measure of Value • Money assigns a value to a good or service and can then be exchanged in the market place

  7. Types of Money • Coins: Metallic forms of money such as pennies, nickels, etc. • Currency: Both (coins and paper)

  8. Spending, Borrowing, and Investment • Spending Money • Checking Accounts • Called Demand Deposits because your money is available “on demand” • Used by writing a check or using a debit card • Credit • Credit Cards act as a loan • The purchaser is deferring payment until a later date and must pay interest on the purchase • Certificate of Deposit (CD) • Called Time Deposits because you only have access to your money after a set amount of time • Earn a higher interest rate than a checking/savings account

  9. Types of financial institutions • Demand Deposit and Time Deposit Accounts are usually held at either a commercial bank, credit union or savings and loan 1. Commercial Banks • Receive deposits of money, extend credit, and provide loans • Banks make money on the interest they collect from loans • Collateral • Requirement to obtain a loan, collateral is anything of value that can be used to cover the cost of the loan if you don’t pay 2. Savings and Loans - Traditionally loaned money to people buying homes 3. Credit Unions • Open only to workers of a certain group • Can offer higher interest rates to its customers

  10. Stocks, Bonds, and Mutual Funds • Stocks • Shares in a company that an individual purchases giving that person part ownership • Can be very rewarding and very risky • AFLAC and ENRON • Mutual Funds • Helps minimize risk • Pool money from many investors to buy a range of stocks • Lower rate of return

  11. Bonds • Bought by individuals • Loans to either a company or government

  12. Insurance • Insurance • When you buy a stock you are accepting the risk. Insurance involves transferring risk to others • Paying money to an insurance company so if what you value is lost or damaged the insurance company will pay for it

  13. Life Insurance • Provides money to one’s family if they die • Term Life Insurance • Whole Life Insurance • Health/Medical Insurance • Covers health and medical expenses • Liability Insurance • Provides protection from claims arising from injuries or damage to other people/property • Homeowner, auto insurance • Comprehensive Liability • Covers businesses from wide range of catastrophes

  14. Businesses and Investment • Capital Investment • Investing profits in capital to make the company more efficient • Pension Funds • Mutual funds set up by employers to allow employees to save for retirement • Employees pay into the fund and gain interest

  15. Is Your Money Safe? • U.S. has one of the safest financial systems in the world. • FDIC- Federal Deposit Insurance Commission • Insures accounts of up to $100,000 • Created after Great Depression

  16. The Federal Reserve Functions: 1. Act as the gov’t bank 2. Conducting Monetary Policy • Controlling the supply of money and the cost of borrowing money

  17. Changing the Money Supply • The FED does this in 3 ways: • Reserve Requirement • Discount Rate • Open Market Operations

  18. reflection • What is “medium of exchange”? • Why is the Barter system inconvenient? • Why is a checking account called a “demand deposit”? • What does a credit card company offer? • Why might someone choose to put money in a Certificate of Deposit? • Summarize the differences between a Commercial Bank, Savings and Loans, and Credit Unions. • Why might someone choose to invest in a Mutual Fund? • What is the purpose of buying insurance? • What is the purpose of the FDIC? • What role does the Federal Reserve play in our economy?

  19. Closing ? • What are the two ways a person can make money in the stock market? • Capital gain- Sell stock for more than you bought it • Dividend- Receive part of corporate profits based on how much stock you hold

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