Money and Banking

1. Money and Banking Chapter 10

2. The Three Uses of Money • _________ – anything that serves as a medium of exchange, a unit of account, and a store of value • Money as a Medium of _______________ • Barter if we didn’t have money • Money as a Unit of _______________ • Compares values of goods and services • Money as a Store of ________________ - Continues to hold value and be recognized over time

3. The Six Characteristics of Money • _______________ – coins and paper bills used as money • Durability • _______________ • Divisibility • Uniformity • _________________ • Acceptability

4. Sources of Money’s Value • ___________________ Money • Objects that have value in and of themselves and that are also used as money • EX: Salt, cattle, precious stones, tobacco, cotton • __________________ Money • Objects that have value because the holder can exchange them for something else of value • EX: Paper receipts for gold or silver; until 1930s

5. Sources of Money’s Value • _____________ Money • Objects that have value because a government has decreed that they are an acceptable means to pay debts • EX: “_________________”, our money • Controlled by the Federal _____________, kept in limited supply to hold value • _____________ Money • Bank issued credit

6. Measuring the Money Supply • _______________ Supply • All the money available in the US economy • Divided into two categories; M1 and _____ • M1 • Contains assets that have ________________ • The ability to be used as, or directly converted to cash • Currency, Demand Deposits (checking accounts), other checking accounts (with interest), and Traveler’s checks

7. Measuring the Money Supply • M2 • “______________”; not accessed easily • Savings deposits, money market mutual funds, small denomination time deposits, AND M1

8. Functional Financial Institutions • Storing Money • Banks – insured • Saving Money • ______________ accounts • ______________ accounts • Money market accounts • Interest rate fluctuates • ___________________ of Deposit (CDs) • Guaranteed interest rate, but must meet time length

9. Functional Financial Institutions • Loans • ___________________ Reserve Banking • Only keeps a fraction of it’s funds on hand and lends out the rest • _________________ • Default – failure to pay back a loan • Mortgage • A specific type of loan used to buy ________________ • Usually a longer-term loan (15, 25, 30 years)

10. Functional Financial Institutions • Credit Cards • They __________ you the money for immediate purchase, you have a specific date for a bill to repay bank for all purchases • Great for credit ________ you make all your payments!!!! • BE VERY CAREFUL

11. Functional Financial Institutions • Simple and Compound Interest • ______________ – the price paid for the use of borrowed money • ______________ – the amount borrowed • _____________ interest • Interest paid only on the principle • ________________ Interest • Interest paid on both he principle and accumulated interest

12. Functional Financial Institutions

13. Types of Financial Institutions • Commercial Banks • Chase • Savings and Loan Associations • Savings Banks • Credit Unions • Finance Companies