1. Money, Financial Institutions, and the Federal Reserve*
Chapter Twenty *
Money, Financial Institutions, and the Federal Reserve
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. *
WHAT’S MONEY?
What is Money? *
LG1
Money -- Anything people generally accept as payment for goods and services.
Barter -- The direct trading of goods or services for other goods or services.
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3. STANDARDS for a USEFUL FORM of MONEY*
STANDARDS for a USEFUL FORM of MONEY
What is Money? *
LG1
Portability
Divisibility
Stability
Durability
Uniqueness
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4. *
The MONEY SUPPLY
What is the Money Supply? *
LG2
Money Supply -- The amount of money the Federal Reserve makes available for people. The money supply is referred to as:
M1 -- Money that can be accessed quickly (coins, paper money, travelers’ checks, etc.).
M2 – M1 + money that may take a little time to obtain (savings accounts, mutual funds, etc.).
M3 -- M2 + big deposits like institutional money market funds.
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5. FIVE MAJOR PARTS of the FEDERAL RESERVE SYSTEM*
FIVE MAJOR PARTS of the FEDERAL RESERVE SYSTEM
Basics About the Federal Reserve *
LG2
The Board of Governors
The Federal Open Market Committee
12 Federal Reserve Banks
3 Advisory Councils
The member banks of the system
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6. MANAGING the MONEY SUPPLY*
MANAGING the MONEY SUPPLY
Basics About the Federal Reserve *
LG2
The Fed uses three basic tools:
Reserve Requirement -- A percentage of commercial banks’ checking and savings accounts they must keep in the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.
Open-Market Operations -- The buying and selling of government bonds.
Discount Rate -- The interest rate the Fed charges for loans to member banks.
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7. * * The U.S. BANKING SYSTEM Commercial banks
LG4
Commercial banks
Savings and loan associations
Credit unions
Nonbanks
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8. PROTECTING DEPOSITORS’ MONEY*
PROTECTING DEPOSITORS’ MONEY
Protecting Your Funds *
LG5
The Federal Deposit Insurance Company (FDIC) -- An independent agency of the U.S. government that insures bank deposits up to $100,000 ($250,000 until December 2013).
The Savings Association Insurance Fund (SAIF) -- Insures holders of accounts in savings and loan associations.
The National Credit Union Administration (NCUA) -- Provides up to $100,000 coverage per individual depositor per institution.
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9. MAKING TRANSACTIONS in OTHER COUNTRIES*
MAKING TRANSACTIONS in OTHER COUNTRIES
International Banking and
Banking Services *
LG7
Letter of Credit -- A promise by the bank to pay the seller a given amount if certain conditions are met.
Banker’s Acceptance -- A promise the bank will pay some specified amount at a particular time.
Money exchange allows companies to go to a bank and exchange currencies to use in a particular country (i.e. dollars for euros).
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10. LEADING INSTITUTIONS in INTERNATIONAL BANKING*
LEADING INSTITUTIONS in INTERNATIONAL BANKING
International Banking and
Banking Services *
LG7
World Bank -- Lends most of its money to less- developed nations to improve their productivity and help raise standards of living and quality of life.
International Monetary Fund (IMF) -- Fosters cooperative monetary policies that stabilize the exchange of one national currency for another. About 185 countries are a part of the IMF.
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