1. Banking Today OBJ
In this lesson, students will be able to identify important terms concerning banking.
Students will be able to identify and/or define the following terms:
Federal Reserve Principal
Monetary Policy Interest
Money Supply Default
Liquidity Stocks & Bonds

2. There was a time when banks were not
regulated by the Federal government.
Some bankers made poor decisions
that bankrupted their banks.

3. The Federal Reserve Bank
December 23, 1913 : Provides the nation with a safer, more flexible, and more stable monetary and financial system..
1. Monitor banking in the country and make sure that banks did not make too many loans.
2. Holds bankers to higher standards thereby protecting consumers.

4. The 12 Federal Banks monitors banking in every part of the United States.

5. The Fed The Federal Reserve Bank is commonly referred to as the “Fed.”
The FED uses monetary
policy to stimulate the
economy by lowering
interest rates
Lower interest rates provide cheaper loans giving people more disposable income.

6. MONEY SUPPLY The money supply is all the money
available in the United States.

7. Cash and Checks and Debit Cards They have liquidity.
Liquidity means it can be used easily as money.
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8. BUT…These assets must be converted to cash before they are used.
2. Savings accounts and mutual funds, etc...are also part of the money supply.
BUT…These assets must be converted to cash before they are used.
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9. Mortgages & Home Equity Loans
LOAN: An amount of money that is given to someone for a period of time with a promise that it will be paid back with interest over a certain amount of time
Types of Loans:
Personal Loans
Credit Cards
Mortgages & Home Equity Loans
Business Loans
Student Loans

10. A mortgage is a loan on real estate.
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11. Principal and Interest
There are two parts to any loan: principal and interest.
The principal is the actual amount borrowed.
The interest is the money a customer pays above the principal for the opportunity to borrow money.
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12. Interest
When money is deposited in a bank, the customer receives interest on the money.
A person who borrows money must pay interest.

13. Interest –Daily Interest Rate (DIR)
The “daily” in “daily interest rate” means that interest accrues every day
Let’s walk through the calculation to determine how much interest accrues in one day on a $10,000 loan with an interest rate of 4.66%
(Interest Rate ÷ Days in Year) × Outstanding Principal Balance
( ÷ 365) × $10,000 = $1.27

14. DPR
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15. APR
An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment, and is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan
APR/365=DPR /365=
DPR/Days in Billing cycle x Balance subject to interest=APR
( X 30) X10000=38.30

16. APR

17. How Payments are Applied
Fees
Interest
Principal $0
$38.83
$65.58
First payment on:
$10,000 loan
Interest rate: 4.66%
Monthly payment amount: $104.41

18. Repayment Plan Summary
John Smith has $35,000 in Direct Loan debt at an interest rate of 4.66%. His income is $30,000, he is single, and he lives in Indiana. His income increases at a rate of 5% per year.
Repayment Plan
Initial Payment
Final Payment
Total Paid
Total Paid in Interest
Total Time in Repayment
Forgiveness
10-Year Standard
$366
$43,934
$8,934
10 years -
Graduated
$206
$619
$46,212
$11,212
Extended
$199
$59,561
$24,561
25 years
Extended Graduated
$137
$332
$65,102
$30,102
Income-Based
$156
$53,706
$18,706
15 yr., 5. mo. $0
Pay As You Earn
$104
$361
$50,699
$28,620
20 years
$12,920
Income-Contingent
$240
$315
$49,347
$14,347

19. Delinquency and Default
Delinquency begins on the day after due date when full payment not made
Loan servicers will begin activities to try to prevent default, including contacting references and sending notices
Loan servicers always try to keep the borrower making payments because it will save the borrower time and interest payments in the long run
Servicers will provide deferment and forbearance options if needed
Default occurs after 270 days of delinquency

20. Default Default: When a person fails to pay back a loan.
Defaulting on a loan leads to bad credit and higher interest rates in the future.
By defaulting, a person ruins his reputation for repaying a loan.
Bankruptcy: A legal
declaration of an inability
to pay debt.

21. Consequences of Default
Reported to credit bureaus
No more eligibility for federal student aid
Loan immediately due and payable in full
Lose eligibility for repayment plans and deferment or forbearance options
Collection agencies will contact borrower
Administrative wage garnishment
Garnishment of tax refunds

22. Defaulting on a loan leads to bad credit
and higher interest rates in the future.

23. Stocks,
you own.
Bonds,
you loan.

24. Retirement
Millennials — those born in the late 1990s — will need upwards of $2.5 million
The youngest Millennials (born in the 1990’s) would need to save $1,000 a month for 48 years to accumulate $2.4 million.
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26. 4. Bonds
Bonds are loans.
An investor loans money to a corporation or a government.
The corporation or government must repay the loan with interest.
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27. This is a U.S. Savings Bond. When an
investor buys this bond, he is loaning money
to our Government.
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28. A bond must be converted to cash before it can be used.
To receive all of the possible interest accrued on the bond, an investor must wait until the bond matures.
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29. Bonds and Risk Bonds are relatively safe investments.
Due to the relative safety of bonds, investors do not make as much money investing in bonds as they do stocks.
However, not all bonds are safe.

30. Types of Bonds
U.S. Savings Bonds and U.S. Treasury Bonds-loan to the government.
These are safest investments.
Corporate Bond- loan to a corporation with the promise to pay back + interest.

31. Junk Bond is a highly risky bond issued from a failing corporation.
Investors are more likely to lose their investments when they purchase junk bonds. However, if the company improves, the investor will make a huge profit.

32. 4. Stocks
When a person buys stock, he is buying partial ownership in a corporation.
If the corporation prospers, the investor prospers.
If the corporation fails, the investor can lose his investment.
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33. A stock certificate is a piece of paper that shows
partial ownership in a corporation.
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34. Profiting from Stocks
There are two ways a stock investor can profit from his stocks:
Dividends: payments
made by corporations to
stockholders
Capital Gain: selling a stock for more than its original purchase price

35. Capital Loss-an investor sells his stock for less than the original purchase price thus losing money.

36. The Markets Primary Markets – where stocks are created
Secondary Markets – investors trade previously issued stocks
The Stock Market
Companies are not involved in the buying and selling of their stock.

37. Initial Public Offering (IPO)
The first time a stock is sold to the public in the Primary Market
Google IPO-$85
The stock has risen 1,294%
since it went public on Aug. 19,
2004, meaning a $10,000
investment in Google at its IPO
price would be worth $139,458.82
today.

39. The Exchanges Where Stocks are Bought and Sold
New York Stock Exchange (NYSE)
American Stock Exchange (AMEX)
NASDAQ

40. Stock Markets Stocks can be purchased in the following stock markets:
The New York Stock Exchange (NYSE): handles the most powerful and established companies
NASDAQ-AMEX: handles mostly newer
technology stocks

41. the most powerful and established companies.
The New York Stock Exchange (NYSE) handles
the most powerful and established companies.

42. The Indices (index)
A collection of stocks—representative of the stock market
Dow Jones – 30 most significant stocks in the stock market
S&P 500 – 500 largest companies on the US stock market
NASDAQ Composite – all stocks on the NASDAQ

43. The Dow Jones Industrial Average
Stock performance is reported in the Dow Jones Industrial Average.
The Dow Jones Industrial Average is usually referred to as the Dow.
The Dow monitors and reports generally on the trading activities of thirty of the most powerful companies.

44. The Dow is either up or down.
If the Dow is up: stocks are selling at higher prices.
If the Dow is down: stocks are selling at
lower prices.

46. ©2011 Cengage Learning. All Rights Reserved
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

47. Bull and Bear Markets
A bull market occurs when the stock market rises steadily over a period of time.
A bear market occurs when the stock market falls over a period of time.
Stock indexes, like the Dow, allow investors to track the progress of the stock market.

48. Investors love bull markets. But remember,
what goes up, most come down.

49. While investors may not like bear markets
because selling prices are low, bear markets
are excellent times for buying shares at lower
prices.

50. 6. Taxes
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51. Tax
A regressive tax is a tax where lower-income entities pay a higher fraction of their income in taxes than do higher-income entities.
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52. Examples of Regressive Taxes
Sales Tax
User Fees
Property Tax

53. A progressive tax is a tax where lower-income entities pay a lower fraction of their income in taxes than do higher-income entities.
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54. 2016 Federal Income Tax Rates

56. Paycheck calculator

57. A proportional tax (sometimes called a flat tax) is a tax where everyone, regardless of income, pays the same PERCENTAGE of income in taxes.
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