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Finance and Accounting

Finance and Accounting. Part 1 Money and Banking. Money. Modern societies have evolved to pay for goods and services using an indirect monetary system rather than through barter Anything agreed upon can be used as money Coins & bills Shells Bitcoin. Functions of Money.

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Finance and Accounting

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  1. Finance and Accounting Part 1 Money and Banking

  2. Money • Modern societies have evolved to pay for goods and services using an indirect monetary system rather than through barter • Anything agreed upon can be used as money • Coins & bills • Shells • Bitcoin

  3. Functions of Money • Medium of Exchange you can exchange your labor for goods and services indirectly • Standard of Value creates a commonly agreed upon amount that items are worth and cost • Store of Value allows assets to be stored and saved

  4. Characteristics of Money • Must be scarce -if it’s too readily available it won’t retain it’s value • Must be accepted -useless if seller won’t accept it, (Bitcoin, AMEX) • Must be divisible into parts -dollar broke down into quarters, dimes, etc. (8 bits) • Must be portable and durable -$1 bills are in circulation for about 18 months and coins for many years (pictured Australian 1 tonne gold coin) -

  5. Where Does Money Come From? • New money is printed and minted by the US Department of the Treasury • Bureau of Engraving and Printing • US Mint • Philadelphia • Denver • San Francisco • West Point NY • Money is added to the national money supply by the Federal Reserve buying US Treasury bonds.

  6. Banking • Manage, store, maintain the supply and move around money • Store money in checking and savings accounts • Transfers money between buyer and seller through checks, check cards, credit cards • Lends money to consumers and businesses • Lending - When someone needs money they don’t have for major purchase (house, car, business upgrade, college tuition) a bank may loan them money. • Usually requires COLLATERAL, or something of value that guarantees that you’ll repay the loan. • INTEREST is the amount paid on top of the value of the loan. Interest is how banks make profit loaning money.

  7. Micro-lending • Microloans are loans made to people who may not have collateral or otherwise don’t qulify for traditional loans • Use of these was pioneered by Bangladeshi economist Mohammad Yunus and his Grameen Bank • Yunus would load money to women, the poor and illiterate to help them start new small businesses. • Relied on societal pressure rather than threat of violence (loan shark) or loss of collateral to guarantee repayment • Lendees make small weekly repayments • Yunus won 2006 Nobel Peace Prize for his work encouraging small business among the poor

  8. Mohammad Yunus Interview with the New York Times Microlending on “How Stuff Works”

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