1. Money and Financial Institutions
Chapter 12
Money and
Financial Institutions

2. Describe the functions and characteristics of money.
Learning Objectives
Describe the functions and characteristics of money.
Explain the 3 main functions of a bank.
Why It’s Important
Understanding the way money and financial institutions work is crucial to understanding the economy.

3. Money
Monetary system – G&S are exchanged using money; can then be exchanged for other G&S
Money can be anything that people accept as a standard for payment
EX: In other times and places people have used shells, stones, corn, parrot feathers, and even gopher tails for money

4. Functions of Money
Medium of Exchange – rather than barter people exchange money to get the goods and services they want
Standard of Value – Money allows us to place a value on objects (How much does this cost?)
Store of Value – Money holds its value over time…you can also store it and accumulate it to become more wealthy

5. Characteristics of Money
Scarcity – a limited amount available (value)
Accepted – people have faith in its value
Divisible – can be broken down into smaller pieces/parts
Portable – can be transported easily
Durable – has a long life/does not fall apart

6. Banking
The banking system is the main type of financial institution, or organization for managing money, in our economy
Banks have three main services 1)storing money, 2)transferring money, 3)lending money

7. ?????????????????????????
What are three characteristics of money (there are five)?
Scarcity
Accepted
Divisible
Portable
Durable

8. Storing Money Deposit – money put into a bank
A bank account is a record of how much money a customer has put in to or taken out of a bank
Deposit – money put into a bank
Withdrawal – money taken out of the bank

9. Transferring and Lending Money
Interest - rate the bank pays you for keeping your money there
electronic funds transfer (EFT) used to move money around by using computer networks
- Collateral – item of value you put up for a loan
- Mortgage - a deed to give the property to the lender if the loan is not paid back
- Safety-deposit boxes – store valuables

10. ????????????????????????? What are the three services banks offer?
Storing Money
Lending Money
Transferring Money

11. HOMEWORK
Rd. Pages
Questions 1-3 on Pg. 205

12. Compare the 3 types of banks found in our economy.
Learning Objectives
Compare the 3 types of banks found in our economy.
Identify the functions of the Federal Reserve System.
Why It’s Important
Understanding the way money and financial institutions work is crucial to understanding the economy.

13. Banks are businesses that provide financial services to make a profit.
HOW BANKS DO BUSINESS
Banks are businesses that provide financial services to make a profit.

14. Types of Banks
Commercial banks - services such as checking and savings accounts, loans, and financial advice
Credit unions offer members a full range of services, including credit cards, checking accounts, and loans
Savings and Loan Associations purpose was to encourage people to save money and make it easier to buy a home.

15. Other Financial Institutions
Mortgage companies provide loans specifically for buying a home or business.
Financial companies offer short term loans to businesses
Insurance companies provide protections against things like fire and theft
Brokerage firms sell stocks and bonds, and other financial services

16. The Federal Reserve System
The Federal Reserve System (or Fed) is the central banking organization in the United States
Set up in 1913 to end the periodic financial panics that occurred during the 1800s and early 1900s

17. Functions of the Fed Clearing Checks
Acting as Federal Gov’t’s fiscal agent
Supervising member banks
Regulating the money supply
Setting reserve requirements
Supplying paper currency

18. What is the Federal Reserve?
?????????????????????????
What is the Federal Reserve?
The central banking organization of the United States

19. HOMEWORK
Review Key Concepts – Pg. 206
Questions 2-5