pp. 174-189 Chapter 12 Money and Financial Institutions
The History of Money In the monetary system goods and services are indirectly exchanged using money, which can then be exchanged for other goods and services.
Graphic Organizer Functions and Characteristics of Money Graphic Organizer FUNCTIONS <ul><li>Medium of exchange </li></ul><ul><li>Standard of value </li></ul><ul><li>Store of value </li></ul>CHARACTERISTICS <ul><li>Stable </li></ul><ul><li>Scarce </li></ul><ul><li>Accepted </li></ul><ul><li>Divisible </li></ul><ul><li>Portable </li></ul><ul><li>Durable </li></ul>
Banking The banking system is the main type of financial institution, or organization for managing money, in our economy.
Storing Money A bank account is a record of how much money a customer has put into or taken out of a bank.
Storing Money Checking accounts are used for storing money in the short term so you can draw on it easily if you want to go shopping or pay a bill.
Storing Money Savings accounts are used for storing money over a long period of time.
Storing Money Interest is a rate the bank pays you for keeping your money there. If a bank pays you 5 percent interest per year on a $1,000 savings account, you’ll have earned $50 after one year.
Transferring Money Banks make it easy to transfer money from one person or business to another.
Transferring Money Today more banks are using electronic funds transfer (EFT) to move money around. With EFT, money is transferred from one account to another through a network of computers.
Lending Money The money you deposit in a bank makes it possible for the bank to lend money to other customers.
Lending Money Most bank loans require some form of collateral. Collateral is something valuable you put up for a loan.
Lending Money The four main types of loans that banks offer are: <ul><li>A mortgage loan </li></ul><ul><li>A commercial loan </li></ul><ul><li>An individual loan </li></ul><ul><li>A line of credit </li></ul>continued
Lending Money A mortgage is a deed to give the property to the lender if the loan is not paid back.
Other Financial Services Many banks provide financial advice on managing and investing your money. You can also store valuable items, such as jewelry and certificates, in safety-deposit boxes.
Other Financial Services Many banks offer credit cards. Banks also manage trust funds, such as an inheritance.
Commercial Banks Commercial banks offer a full range of services such as checking and savings accounts, loans, and financial advice. They are often called full-service banks .
Commercial Banks To make a profit, commercial banks usually charge much more interest on the money they lend than the interest they pay on savings accounts.
Savings and Loan Associations Savings and loan associations were originally set up to offer savings accounts and home mortgage loans.
Savings and Loan Associations The purpose of the savings and loan associations was to encourage people to save money and make it easier to buy a home or start a business.
Savings and Loan Associations Savings and loan associations charged lower interest on loans and paid higher interest on savings. In the 1980s about 20 percent of savings and loans failed.
Savings and Loan Associations The government passed new regulations allowing savings and loan associations to charge higher interest rates and offer more services like credit cards.
Credit Unions Credit unions are nonprofit banks set up by organizations for their members to use.
Credit Unions Credit unions offer members a full range of services, including credit cards, checking accounts, and loans.
Credit Unions Credit unions offer low-interest loans and pay high interest rates on savings accounts.
Other Financial Institutions Mortgage companies provide loans specifically for buying a home or business . Finance companies offer short-term loans to businesses.
Other Financial Institutions Insurance companies not only provide protection against things like fire and theft, but also offer loans to businesses.
Other Financial Institutions Brokerage firms that sell stocks and bonds may also offer a wide range of financial services to its customers.
The Federal Reserve System The Federal Reserve System (or Fed) is the central banking organization in the United States.
Functions of the Fed The six functions of the Fed are: <ul><li>Clearing checks </li></ul><ul><li>Acting as the federal government’s fiscal agent </li></ul><ul><li>Supervising member banks </li></ul>continued
Functions of the Fed <ul><li>Regulating the money supply </li></ul><ul><li>Setting reserve requirements </li></ul><ul><li>Supplying paper currency </li></ul>