Mr. Roseman

 Functions of Money:  a medium of exchange able to trade it for goods/services  a store of value  a measure of value  Types of Money:  anything people are willing to accept in exchange for goods  Currency = 1. coins 2. paper money

 banks bring savers (sellers) & borrowers (buyers) together  savers = deposits  borrowers = loans  banks are businesses  have profit motive!  How do banks make profit? banking fees & interest on loans

 1. ACCEPT DEPOSITS 2. MAKE LOANS  1. ACCEPT DEPOSITS  use deposits to make loans!  checking accounts: pay bills/transfer $ no interest earned short-term  savings accounts interest earned savings grows w/time long-term  certificates of deposit (CDs) customer loans $ to the bank for certain amount of time ex. 1 year CD deposit of $1000 at 4% interest. earns higher interest rate penalty for early withdrawal

 2. MAKE LOANS  loan an agreement for borrowing money with repayment plus interest banks make profit from interest paid on loan loan terminology: “the principle” = the amount borrowed “interest” = the cost of borrowing “interest rate” = the rate of cost to borrow “fixed rate loan” = interest rate on loan cannot change “variable rate loan” = interest rate on loan changes Banks can increase the money supply by making loans. fractional reserve banking (aka “making money out of this air!”)  Let’s see how this works! YAY!

 1. Commercial Banks  2. Savings & Loan Associations  3. Credit Unions

 Bank of the United States, 1791 & 1816  went out of business  state & private banks were left with great freedom  Federal Reserve, 1913  “Panic of 1907” prompted its creation  Great Depression  banks bankrupt  lost customers’ savings  banks now heavily regulated as a result  FDIC (Federal Deposit Insurance Corporation) established, 1933 gov’t corporation insures individual accounts in banks up to $100,000 depositor’s savings safe if bank fails  Savings & Loan Crisis, 1980s

 charge account: buy goods/services at individual businesses, but pay later  credit limit: the maximum amount that you can buy with the promise of later payment  3 kinds of charge accounts  1. installment account repaid w/equal payments over certain period ex. car loan  2. regular account billing cycle where bill is sent at the end interest charged if balance not paid ex. furniture store  3. revolving account billing cycle where bill is sent at the end interest charged on portion not paid account can still be used until credit limit reached ex. credit card

 credit cards: make purchases without cash  Receive an automatic loan Charge high interest loans (usually 18% to 24%) Lower interest rate if customer “reliable” credit cards are NOT debit cards!  How do I apply for credit? Must be 18 Fill out application  credit bureau does a credit check Credit check shows your income, debt, & ability to pay past debts Rating of risk: Excellent, Good, Average, Poor Rating has number associated with it Gives lenders an idea of your reliability  Higher credit score = less interest you’re charged HOW DO YOU ESTABLISH GOOD CREDIT?!