Essential Standard 4.00 Understand the role of finance in business

Objective 4.02 Understand the banking system.

Topics Classification of financial institutions Common payment services Federal Reserve System

Classification of financial institutions

Classification of Financial Institutions Depository –Earns money to finance their business by accepting deposits from customers –Types include: Commercial banks, which offer many different services, including savings, loans, and checking accounts. Savings and loan associations (S&Ls), which traditionally specialize in savings and home loans, but now are very similar to commercial banks. Mutual savings banks, which are owned by the depositors and specialize in savings and home loans. Credit unions, which are not-for profit, serve their members only, and are owned by their depositors.

Classification of Financial Institutions continued Non-depository –Earns money to finance their business by selling specific services such as policies, investments, and loans –Types include: Life insurance companies Investment companies Consumer finance companies Mortgage companies Check-cashing outlets Pawnshops

Classification of Financial Institutions continued Which characteristics of financial institutions are used for comparing them? –Services offered –Safety –Convenience –Fees and charges –Restrictions What kinds of questions may be asked about each characteristic?

Common payment services

Opening a checking account –Signing a signature card is the first step –Endorsing a check for deposit –An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else. –Different types of endorsements: Blank Full Restrictive

Blank Endorsement Consists of endorser’s name only Anyone who has a check with a blank endorsement may cash it.

Special Endorsement Transfers payment of a check to someone else. Can be used to make payment on a debt Juan Delgado is the payee on this check.

Restrictive Endorsement Limits use of the check so it can be deposited only to endorser’s account. Safest type of endorsement, as it cannot be cashed by a thief or someone who finds the check. Safest endorsement to use when mailing a check for deposit or when using the ATM for deposit.

Check Writing Procedures 1.Ensure all information is written in the check register first, and ensure checks are written in numerical order. 2.Write the date the check is written. 3.Write the payee’s name.

Check Writing Procedures continued 5.Write in the numerical amount of the check. 6.Write in the amount of the check in words. 7.Write in the purpose of the check. 8.Sign the check.

Bank Reconciliation What is a bank reconciliation? What is an outstanding check?

Steps in a Bank Reconciliation 1.Obtain the monthly bank statement. 2.Determine checks paid. 3.Find differences between the monthly bank statement and monthly check register. 4.Calculate the adjusted balance. 5.If the balances do not agree, check the steps again and recalculate.

The Federal Reserve System

What is the Federal Reserve System? Why does it exist? Who participates? How is it organized?

The Federal Reserve System continued Services provided by the Fed: –Supervision of banks –Participation of open market activities –Acting as a clearinghouse –Holding reserves –Approving bank mergers –Supplying paper currency –Managing the discount rate