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Chapter

Chapter. Understanding Money and Financial Institutions. 20. 20- 1. The Federal Reserve. Federal Reserve Structure. Regional Reserve Banks. The Federal Reserve. The Banker’s Bank Holds the deposits of commercial banks and makes loans to banks that need additional funds. The Money Supply.

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  1. Chapter Understanding Money and Financial Institutions 20 20-1

  2. The Federal Reserve

  3. Federal Reserve Structure

  4. Regional Reserve Banks

  5. The Federal Reserve The Banker’s Bank • Holds the deposits of commercial banks and makes loans to banks that need additional funds

  6. The Money Supply Time Deposits & Money Market Accts. Total M2 = Demand Deposits + = + TotalM1 Currency

  7. TheMoney SupplyWhy Do We Care?

  8. Control of theMoney Supply

  9. Fed Regulates Money Supply • Increase / Reduce Money Supply • Reserve Requirement • Open Market Operations • Discount Rate

  10. I. Reserve Requirement • Percentage of commercial bank’s checking and savings accounts that must be physically kept in this bank or as a non-interest-bearing deposit at the local Federal Reserve district bank • Most powerful tool

  11. II. Open-Market Operations • Involves buying and selling of U.S. Government bonds by the Fed with goal of regulating money supply • Most commonly used tool

  12. III. Discount Rate • Interest rate that Fed charges for loans to member banks • Member banks borrow money from the Fed and pass it on to their customers – Prime Rate • Fed also sets the rate that banks charge each other – Federal Funds Rate

  13. Fed Regulates Money Supply • Reduce Money Supply • Increase Reserve Requirement • Sell Government Bonds • Increase Discount Rate Slow Down Expand • Increase Money Supply • Reduce Reserve Requirement • Buy Government Bonds • Decrease Discount Rate

  14. American Banking System • Commercial Banks • Savings and Loan Associations/Thrifts • Credit Unions

  15. Commercial Banks • Profit-making organizations that receive deposits from individuals and corporations in the form of checking and savings accounts and then uses some of these funds to make loans • State or Federally Chartered • Two types of customers: • Borrowers and Depositors

  16. Savings and Loans (S&Ls) • Accepts both savings and checking deposits and provides home mortgage loans • Often known as Thrift Institutions • Offered higher interest rates to attract funds

  17. Credit Unions • Not-for-profit , member-owned financial cooperatives that offer the full variety of banking services to their members • State or Federally chartered • Have exemption from federal income taxes

  18. American Banking System • Non-Depository • Life Insurance Companies • Pension Funds • Brokerage Firms • Finance Companies

  19. How the Government Protects Your Funds

  20. How the Government Protects Your Funds • FDIC • $250,000/Account • SAIF(FSLIC) • $250,000/Account • NCUA • $250,000/Account

  21. International Banking Letter of Credit • Promise to pay seller given amount if certain conditions met

  22. International Banking • International Monetary Fund (IMF) • Established to assist in the smooth flow of money among all nations • Monitors the monetary policies of member nations to ensure a global monetary system that works best for all nations.

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