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Unit 4 – finance and labor
 

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.