1. Money and Banking
Chapter 14

2. The Functions of Money Historical Money Money has 3 functions:
Sheep, gold, shells, whales’ teeth, beads
Money has 3 functions:
Medium of Exchange
Unit of Accounting
Store of Value

3. Medium of Exchange Seller accepts in exchange for a good or service
Without
Would have to barter
Both parties would have to want in order to exchange
Still used today in small societies

4. Unit of Accounting Allows comparison of goods and services
Price indicates the value
Also allows for accurate record keeping
Debts, incomes, etc.

5. Store of Value
You work and store value of the work in form of dollar and coins (in the U.S.)
Inflation
Less able to act as store of value

6. Characteristics of Money
Must meet most in order to be used as exchange item:
Durable – passing between people can withhold the wear and tear
Portable – Must be easy to carry
Divisible – Must be easy to divide into small parts so purchasing of any amount can be made
Stable in Value – Cannot change rapidly or Store of Value will decrease
Scarce – What gives it value
Accepted – Must be accepted in exchange for goods and services.

7. Types of Money Commodity Money Representative Money Fiat Money
Gems, Cattle, Gold, Silver
Representative Money
Money backed by or exchangeable for gold or silver
Historically used in the U.S.
Fiat Money
Face value given through government order
Becomes legal tender
Type of Money in U.S. today

8. History of American Banking
Colonial Period
Could not print money or coin
Used Bartering
Wampum (bead necklaces, bracelets, etc.), Tobacco
European gold or Silver
Spanish Dolar
Revolutionary War
Continental Congress issues “Continentals”
Issued as credit against deposits
Many became worthless so businesses would not accept

9. History of American Banking Cont.
After the Rev. War
Constitution (1788) gives power to mint coins
Private banks issued banknotes
Bills that represented total of gold and silver in reserve
Coinage Act of 1792
Unit of Currency for the U.S. – The Dollar

10. Banking Services Have both a National and State-Chartered System today
Offer:
Checking, automatic deposits and payments, storage of valuables, transfer money, overdraft checking
Terms and Conditions vary by state
KNOW YOUR BANKS POLICIES AND FEES!!

11. Electronic Banking Developed in late 1970s
Electronic Funds Transfer (EFT)
Transfer of money from one bank to another without money changing hands
ATMs – Automated Teller Machines
Today,
Bank from home
Check balances, transfer funds, pay bills, apply for loan
EFT Concerns:
Fraud
All customer information stored on computer mainframe
Hacker can access information if able to get around firewalls
Electronic Funds Transfer Act of 1978
Customers only responsible for $50 if stolen or illegally used card if reported within 2 days
More than two days - $500

12. Types of Money in the U.S. and Near Moneys
Currency – The U.S. Dollar
Coins (5% of Currency)
Issued by Bureau of Mint
Part of Treasury Department
Paper (95% of Currency)
Issued by Federal Reserve Bank
Created by Bureau of Engraving and Printing
Prints Money
Redesigns money every 7 to 10 years
Why?
Denominations of:
1, 5, 10, 20, 50, 100
Used to have up to a 100,000 bill

13. Checks Money deposited into a Checking Account Offered by:
Withdraw is done by writing a check
Bank pays amount when presented for payment
Offered by:
Savings Banks, S&L’s, Credit Unions, Commercial Banks
Many offer for free
Banks make money through service fees
Largest part of money supply in the U.S.

14. Credit Cards and Debit Cards
Not a form of money
Why???
No store of value, no unit of accounting
Is a loan to you by issuer of card
Debit Card
Automatically withdrawals funds from a checking account
Funds get transferred within 72 hours
Advantage over Checks
Cannot over draft the account

15. Near Moneys Values stated in terms of Money Have High Liquidity
Examples:
Savings Account
Time Deposit