Copyright 2005 Prentice- Hall, Inc.

Part Five: Understanding Financial Issues Understanding Money And Banking Understanding Securities And Investments Understanding Financial And Risk Management Copyright 2005 Prentice- Hall, Inc.

Understanding Money & Banking Chapter 18 Understanding Money & Banking

Copyright 2005 Prentice- Hall, Inc. Chapter Outline What Is Money? The U.S. Financial System The Federal Reserve System The Changing Money & Banking System International Banking & Finance Copyright 2005 Prentice- Hall, Inc.

Characteristics Of Money Portability Divisibility Durability Stability Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Functions Of Money Medium Of Exchange Store Of Value Unit Of Account Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Money Supply Spendable Money = M1 Currency Checks Demand Deposits Convertible Money = M2 M1 Time Deposits Money Market Funds Savings Deposits Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Money-Supply Growth Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Credit Cards Not Part Of M1 Or M2 Big Business Convenient Profitable For Credit Card Companies Sources Of Profit Cardholder = Annual Fees & Interest Merchant = 2-5% Fee Copyright 2005 Prentice- Hall, Inc.

Projected Consumer Bill Payments (2005) Total = $6.74 Trillion Source: Wired, “The New Currency” April 2004, p. 59. Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. U.S. Financial System Issues Diversification/Mergers Interest Rates Depository Institutions Commercial Banks Thrifts Savings & Loans Mutual Savings Banks Credit Unions Copyright 2005 Prentice- Hall, Inc.

The Prime Interest Rate Copyright 2005 Prentice- Hall, Inc.

Nondepository Institutions Pension Funds Insurance Companies Finance Companies Securities Dealers Copyright 2005 Prentice- Hall, Inc.

Special Financial Services Pension/Trust Services Individual Retirement Accounts Trust Services International Services Currency Exchange Letters Of Credit Banker’s Acceptances Financial Advice/Brokerage Services Automated Teller Machines Electronic Funds Transfer Copyright 2005 Prentice- Hall, Inc.

Worldwide ATM Locations Copyright 2005 Prentice- Hall, Inc.

Commercial Banking Regulation Federal Reserve System Federal Deposit Insurance Corporation Other State & Federal Agencies Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. How Banks Create Money Copyright 2005 Prentice- Hall, Inc.

Federal Deposit Insurance Corporation Insures Member Banks Deposits To $100,000/Account 1941 – 1980 Examined Bank Practices Accounts Banks Deregulated- Depository Institutions Deregulation & Monetary Control Act Of 1980 Copyright 2005 Prentice- Hall, Inc.

Structure Of Federal Reserve System Board Of Governors Reserve Banks (12) Member Banks Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Functions Of The Fed Government’s Bank Banker’s Bank Check Clearing Controls Money Supply- Monetary Policy Copyright 2005 Prentice- Hall, Inc.

Check Clearing By Hand (1940s) Source: Federal Reserve Bank of Atlanta, http://www.frbatlanta.org/invoke.cfm?objectid=83FD414A-9AF0-11D5-898400508BB89A83&method=display_body Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Clearing A Check Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Tools Of The Fed Reserve Requirements Discount Rate Open-Market Operations Selective Credit Controls Copyright 2005 Prentice- Hall, Inc.

Dual Prime Rate & Federal Discount Rate 2004 On 12/31 Of That Year Source: Federal Reserve Bank of St. Louis, http://research.stlouisfed.org Copyright 2005 Prentice- Hall, Inc.

Dual Prime Rate & Federal Discount Rate 2004 On 12/31 Of That Year Source: Federal Reserve Bank of St. Louis, http://research.stlouisfed.org Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Interstate Banking (1995) Bank Holding Companies Can Acquire Subsidiaries In Any State No Company Can Control More Than 10% Of Insured’s Deposits No Bank Can Control More Than 30% Of State’s Deposits Banks Can Provide Transactions For Affiliates Banks Can Convert Affiliates To Branches (1997) Copyright 2005 Prentice- Hall, Inc.

Electronic Technology Debit Cards/Point-Of-Sale Terminals Smart Card E-Cash Copyright 2005 Prentice- Hall, Inc.

International Banking Government Influences Exchange Rates International Payments International Banking Structure World Bank International Monetary Fund Copyright 2005 Prentice- Hall, Inc.

International Payments Process Copyright 2005 Prentice- Hall, Inc.