1. Understand the role of finance in business
ESSENTIAL STANDARD 4.00
Understand the role of finance in business

2. OBJECTIVE 4.02
THE BANKING SYSTEM 2

3. What are the different financial institutions and their purpose?
Topics
What are the different financial institutions and their purpose?
What are the common payment services provided by financial institutions?
What is a depository financial institution?
Earns money to finance their business by accepting deposits from customers
What are some types of depository financial institution?
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. 3

4. CLASSIFICATION OF FINANCIAL INSTITUTIONS

5. Classification of Financial Institutions
Depository financial institutions
Earns money to finance their business by accepting deposits from customers
Types of Depository financial institution?
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.

6. Non-depository financial institutions
Earns money to finance their business by selling services like policies, investments, and loans
Types of non-depository financial institution
Types include:
Life insurance companies
Investment companies
Consumer finance companies
Mortgage companies
Check-cashing outlets
Pawnshops

7. Classification of Financial Institutions continued
Services –Does the institution offer savings, checking, loans, credit cards, safe deposit boxes, trusts, etc?
Safety – Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses?

8. Convenience – Does the institution offer the access you desire
Convenience – Does the institution offer the access you desire? Example: ATM machines near home and job
Fees and Charges – What are the short and long-term costs of the services?
Restrictions – Are there minimum balances that must be kept, or other restrictions?

9. COMMON PAYMENT SERVICES

10. Common payment services
What are the first two steps in opening a checking account? Signing a signature card is the first step
Endorsing a check for deposit
What is an endorsement?
An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else.

11. Blank Endorsement What is a blank endorsement?
Consists of endorser’s name only
Who may cash a check that has a blank endorsement?
Anyone who has a check with a blank endorsement may cash it.

12. Special/Full Endorsement
What is a special or full endorsement? Transfers payment of a check to someone else.
Why would this be used?
Can be used to make payment on a debt
Who is the payee on this example check?

13. Restrictive Endorsement
What is a restrictive endorsement? Limits use of the check so it can be deposited only to endorser’s account.
Why would this be the safest endorsement?
it cannot be cashed by a thief or someone who finds the check
When should it be used?
to use when mailing a check for deposit or when using the ATM for deposit.

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

15. Check Writing Procedures continued
Write in the numerical amount of the check.
Write in the amount of the check in words.
Write in the purpose of the check.
Sign the check.

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

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

18. THE FEDERAL RESERVE SYSTEM

19. The Federal Reserve System
Some basics about The Federal Reserve:

20. 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