****** McGraw-Hill/Irwin Understanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Nickels McHugh McHugh ** UnderstandingMoney,FinancialInstitutions,and the Federal Reserve 20 CHAPTER * **

****** 20-2 Why Money? Economy Depends On ItEconomy Depends On It Money vs. BarterMoney vs. Barter Unit of ValueUnit of Value Electronic CashElectronic Cash Money SupplyMoney Supply Global Exchange- Rise/Fall of Dollar & U.S. EconomyGlobal Exchange- Rise/Fall of Dollar & U.S. Economy

****** 20-3 Characteristics Of A Good Money System PortabilityPortability DivisibilityDivisibility StabilityStability DurabilityDurability UniquenessUniqueness

****** 20-4 Cost of Pennies The cost of manufacturing a penny is worth more than 1-centThe cost of manufacturing a penny is worth more than 1-cent The Mint estimates it will cost 1.23 cents per pennyThe Mint estimates it will cost 1.23 cents per penny The cost of producing a penny has risen 27% in the last yearThe cost of producing a penny has risen 27% in the last year Added penny and nickel expenses will reduce the Mint’s profit this year by $45 millionAdded penny and nickel expenses will reduce the Mint’s profit this year by $45 million Source: May 10, 2006

****** 20-5 $ Bills and Coins Source: U.S. Department of Treasury, FY 2005 Performance and Accountability Report

****** 20-6 The Money Supply Currency Demand Deposits = Total M1 + Time Deposits & Money Market Accts. Total M2 *SA *SA = Seasonally Adjusted + =

****** 20-7 Life Span of Currency Source: Bureau of Engraving and Printing

****** 20-8 Federal Reserve Structure Board of Governors Advisory Councils Federal Reserve Banks Federal Open Market Committee Member Banks

****** 20-9 Regional Reserve Banks

****** Federal Reserve Buys/Sells Foreign CurrencyBuys/Sells Foreign Currency Regulates CreditRegulates Credit Supervises BanksSupervises Banks Collects Data on Money Supply/Economic ActivitiesCollects Data on Money Supply/Economic Activities Processes ChecksProcesses Checks

****** Monetary Policy Reserve RequirementReserve Requirement Tight/IncreaseTight/Increase Loose/DecreaseLoose/Decrease

****** Fed Regulates Money Supply Increase Money Supply Reduce Discount Rate Buy Government Bonds Set Credit Controls Slow Down Reduce Money Supply Increase Discount Rate Sell Government Bonds Set Credit Controls Expand

****** Federal Reserve System HistoryHistory Land BanksLand Banks Central BankCentral Bank Great DepressionGreat Depression StructureStructure

****** American Banking System Depository Commercial BanksCommercial Banks Savings and Loan Associations/ThriftsSavings and Loan Associations/Thrifts Credit UnionsCredit UnionsNon-depository Life Insurance CompaniesLife Insurance Companies Pension FundsPension Funds Brokerage FirmsBrokerage Firms Finance CompaniesFinance Companies

****** United States’ Largest Banks Source: Infoplease.com Assets In Billions

****** Services Available at Most Commercial Banks

****** Thrift Highlights Office of Thrift Supervision (OTS): There are 854 thrifts supervised by OTSThere are 854 thrifts supervised by OTS In addition, OTS supervised 480 company enterprises that owned 448 thriftsIn addition, OTS supervised 480 company enterprises that owned 448 thrifts Thrift industry controlled over $1.5 trillion in total assets (2 nd Quarter of 2006)Thrift industry controlled over $1.5 trillion in total assets (2 nd Quarter of 2006) Source: August 23, 2006

****** Number of Credit Unions Source:

****** Regulation of Financial Institutions Federal Reserve BoardFederal Reserve Board FDICFDIC SAIF(FSLIC)SAIF(FSLIC) NCUANCUA

****** Future of Banking Repeal of Glass-Steagall (1933)Repeal of Glass-Steagall (1933) Gramm-Leach-Bliley (1999)Gramm-Leach-Bliley (1999) One-Stop ShoppingOne-Stop Shopping

****** Number of Households That Bank Online In Millions Source: USA Today, “Snapshots”, and CNNMoney.com

****** Safe Online Banking Verify Bank Uses Encryption TechnologyVerify Bank Uses Encryption Technology Bank Has Liability GuaranteeBank Has Liability Guarantee Pick Random PIN Code- Letters & NumbersPick Random PIN Code- Letters & Numbers Regularly Scan For Unauthorized TransactionsRegularly Scan For Unauthorized Transactions Use Anti-Virus Software & FirewallUse Anti-Virus Software & Firewall Source: Parade Magazine, May 18, 2003

****** Electronic Banking Trends in the U.S. InternetInternet Electronic Funds Transfers (EFTs)Electronic Funds Transfers (EFTs) Check ConversionCheck Conversion Debit Card- TeenagersDebit Card- Teenagers Smart CardSmart Card Automatic TransfersAutomatic Transfers

****** When Will The U.S. Become Cashless? Source: New Designs for Your Money, U.S. Department of Treasury

****** International Banking Currency or Money ExchangeCurrency or Money Exchange Letter of CreditLetter of Credit Banker’s AcceptanceBanker’s Acceptance World BankWorld Bank IMFIMF

****** World’s Largest Banks Source: USA Today, “Snapshots” In Billions