Unit 4 – finance and labor
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Unit 4 – finance and labor

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Unit 4 – finance and labor Unit 4 – finance and labor Presentation Transcript

  • Unit 6 – Finance I. Currency
  • A. Money
    • Three Uses of Money
    • Medium of exchange (Barter) - Exchanging goods & services without use of set values.
    • Unit of Account.
    • Store of Value.
    • 2. Currency.
  • B. Six Characteristics of Money
    • Durability – withstands wear & tear.
    • Portability – Easily transported from place to place.
    • Divisibility – Easily divided into smaller denominations.
    • Uniformity – Every unit must be the same for counting & measuring.
    • Limited Supply – The lower amount available, the value is more.
    • Acceptability – Everyone must be willing to accept the goods.
  • C. Sources of Money’s Value
    • Commodity Money.
    • Representative Money.
    • Fiat Money.
  • D. Bank
    • Early Republic
    • Federalists: Alexander Hamilton supported a centralized gov’t & national bank.
      • Issues a single currency for the entire nation
      • Manages government’s funds
      • Monitors other banks.
    • Anti-federalists: Thomas Jefferson wanted a decentralized system.
  • E. First Bank of the United States
    • 1791 – Bank given 20 year charter
    • Great success in bringing order to banking
    • Anti-federalists argued it was unconstitutional & let charter run out in 1811.
  • F. Chaos Ensues
    • States issued notes without backing.
    • Chartered many banks without credibility.
    • Prices rose, different types of currency produced.
  • G. Jacksonian Era
    • Second Bank of the United States
    • 1816 – 20 year charter
    • Jackson opposed centralized government & opposed re-chartering of the bank.
  • H. Free Banking
    • Bank runs
    • Wildcat Banks – established on the frontier & were unreliable.
    • Fraud – Banks issued notes, collected gold & silver, then vanished.
    • Currency – Different states, cities, banks, businesses, & other organizations issued currency-creating chaos.
  • I. Civil War & Reconstruction
    • North attempted stability.
      • Greenbacks – national currency
      • Nation Banking Acts of 1864 & 1865
      • Power to charter banks.
      • Power to require banks to hold gold & silver to back notes
    • South issued its own currency based on cotton, but became worthless.
  • J. Gold Standard .
    • Definite value for the dollar.
    • Government issued currency only if it had gold to back it.
  • K. Progressive Era
    • Bank chaos
    • Centralized system for currency, but not banking.
    • Panic of 1907 – Banks did not have enough reserves to back up $, banks failed, businesses stopped expanding.
  • L. Federal Reserve System
    • Central Bank.
    • Member Banks.
    • Federal Reserve Board – Appointed by President of the USA to supervise banks.
    • Loans – Fed banks loaned money for short term needs to prevent bank failures.
    • Federal Reserve Notes.
  • 6. The Federal Open Market Committee
      • Regulates banks to ensure they follow federal laws
      • Banker’s bank
      • Conducts monetary policy = controlling supply of money.
  • M. Great Depression
    • Economic decline starts 1929.
    • Banks loaned large sums of $ in the 20’s that businesses could not pay back.
    • Crop failures & dropping prices mean farmers unable to pay debts.
    • Stock market crash -1929 created panics in market & banks across nation.
    • FDR established bank holiday so banks would close & give time for people to calm down & the industry to regain footing.
    • FDIC established.
  • N. Deregulation and the Reagan Era
    • Deregulation was sought by banks & was given by Republicans and Democrats.
    • Several industries were deregulated.
    • Savings & Loans also deregulated although.
  • O. Conflicting Progress
    • S& L’s failed after risky loans.
    • Congress passed legislation to restrict S&L’s.
    • Glass-Steagall Act passed that allows banks to sell stocks and bonds.
    • Bank mergers became extremely popular.
  • II. Modern Banking
    • A. Money Supply – all $ USA.
    • M1- Liquidity - money that people can gain access to easily and immediately
    • M2 = assets that cannot be used as cash within a short period of time. (Deposits in savings accounts).
  • B. Managing Money
    • Storing – fireproof vaults and protected by the FDIC
    • Saving accounts
    • Checking accounts
    • Money market accounts- Save and write a limited number of checks. Interest is high, but variable.
    • Certificates of Deposit – Guaranteed rate of interest over a period of time, in which you are not allowed to withdrawal unless you pay a fee.
  • C. Loans
    • Banks let borrowers take money, as longs as they pay it back with interest.
    • Mortgages.
    • Credit Cards.
    • Simple interest – $ made off of original borrowed sum.
    • Compound interest – $ made of original sum and previous interest.
    • Profit- banks make more $ off interest from $ they loaned out than the interest they pay to accounts.
  • D. Financial Institutions
    • Credit Unions- Organized for specific groups of people, with low interest rates
    • Finance Companies – People are more likely to fail paying these back and so interest rates are high.
  • III. Investments
    • Financial System
      • Flow of Savings – from savers to financial institutions to investors.
      • Intermediaries
        • Bank
        • Life Insurance Companies –Company collects premiums from customers and lends to investors.
        • Pension Funds – receives income after working a certain number of years or reaching a certain age.
  • B. Financial Assets
    • 1. Bonds
        • Coupon Rate.
        • Maturity.
        • Par Value (face value or principal).
        • Yield.
        • Discounts – occur when bonds are sold at less than par value.
        • Ratings – Similar to academic grading, rates go from AAA/Aaa to D.
  • 2. Stock Market
    • Stock or equities are shares of ownership in a corporation.
    • Dividends – payments to stockholders from the profits of a corporation. Usually paid four times a year.
  • C. Stock Exchange – Markets for buying and selling stock.
        • NYSE – New York Stock Exchange (1792)
          • represents the largest/most respected companies in the nation.
          • Largest companies are known as blue chips which profit over the long run.
        • NASDAQ –Mostly trading technology and energy stocks, this exchange deals with smaller and riskier companies
  • D. History
        • Investors panicked and 16.4 million shares sold on 10/29/29 (Black Tuesday) compared to a normal 4 to 8 million.
        • Fed limits money supply to discourage lending. Little money was available for recovery.
        • Americans were cautious about stock until 1990’s. Almost half of households own mutual funds.