How can commodity money provide a measure of value? Commodity money provides a measure to value other goods and services. One service might be worth one pound of tobacco, while another service might be worth more or less.

Why is it important for money to be divisible? It is necessary to be able to divide money so that it can be used to purchase items of lesser value as well as those of greater value.

Why did money replace the barter system? Life is simpler with money because it is easier to buy and sell. It is easily portable and allows you to get what you need and sell your own goods and services.

What are the qualifications for something to be used as money? To serve as money it must be easily portable, durable, divisible, and in limited supply.

What is the difference between a national bank and a central bank? A national bank is a commercial bank that receives its charter from the federal government. A central bank is a federally backed “bankers bank” that can loan money to banks in need.

What led to the creation of the Federal Reserve System? The Federal Reserve was created for the following reasons: lack of standard currency through the 1800’s, the problems with the gold standard, changing payment methods, and the instability of banks.

Why was the National Banking System developed? The National Banking system was developed to restore the public’s confidence in the nation’s banking system and to sell bonds to help fund the war.

What must a country do to establish a gold standard? A country must have the appearance that currency can be redeemed for gold.

How did the Fed strengthen the National Banking System? The Fed helped restore confidence in the banking system, because it could provide loans to help banks that were in trouble.

Explain what a state-chartered bank is. A state-chartered bank is a bank that, upon forming, receives its charter from the state in which it operates. The laws of the state would be followed in forming the bank.

What services do banks provide to consumers? Banks provide checking accounts, savings accounts and time deposits, debit cards, credit cards, smart cards, and electronic funds transfers.

How does a bank become established? A bank is usually organized as a corporation. The corporation raises funds by selling stock. Usually, the founder of the corporation reserves some shares for him/herself.

Why have so many different methods evolved for accessing money? Customers need a variety of methods to access money in the electronic age. Many employers, for example, pay workers by electronically depositing their paychecks into workers’ checking accounts. Overall, the banking industry is moving toward using less paper, such as paper checks, and doing all customer banking electronically.

How do smart banking practices contribute to your own financial literacy? Smart banking practices help you develop your own creditworthiness. Considering carefully what services you need from banks and which banking fees you really need to pay helps you save.

What is the difference between a savings account and a certificate of deposit? With a savings account, the bank issues a receipt for the deposit. With a certificate of deposit, the bank issues a type of receipt showing you have loaned money to the bank (interest bearing loans).

Explain the relationship between risk and return. Risk is the degree to which the outcome of an investment is under laid. Typically, higher returns can be expected from a high-risk investment, safer investments pay lower returns.

What are the advantages and disadvantages of a risky investment? Risky investments usually offer greater opportunities for high returns but they may also lose some or all of their values.

What factors determine a bonds value? The risk of the bond or financial stability of the issuer, is the main determinant of value.

What is a futures contract? A future contract is an agreement to buy or sell at a specific future date at a predetermined price. Example: agree to buy a certain commodity at a certain price in the future and hoping the actual price is higher thus saving you money.

What is the main difference between the NYSE Euronext and the AMEX-NASDAQ? NYSE Euronext conducts stock exchanges only on the floor of the exchange. AMEX-Nasdaq conducts exchanges in an over the counter market.

Why is portfolio diversification important? Diversification helps reduce the likelihood of significant drops in the investors’ investments.

How is stock market performance evaluated? Stock performance is evaluated by referring two indicators: The Dow Jones Industrial average or the Standard & Poor’s 500.

Why do we have futures contracts? A futures contract allows investors to lock in a price to buy or sell stock to make investing more predictable and reduce the risk of serious loss.