1. Section 3 – Banking Today
Chapter 10
Section 3 – Banking Today

2. Objectives
Explain how the money supply in the United States is measured.
Describe the services that banks provide.
Identify different types of financial institutions.
Analyze the changes brought about by electronic banking.

3. Riddle
I have 3 coins that total 25 cents and one of the coins is not a nickel. What are the three coins?

4. Money Supply Categories
Liquidity
Money that can be easily accessed and immediately used for goods and services
Currency
Funds in checking accounts
Traveler’s checks
“Near money”
Cannot be used as cash directly but can be converted fairly easily
Savings Account Funds
Money Market Mutual Funds
Certificates of Deposit
Money Supply Categories

5. M1 or M2? Checking account Dollar bill Personal check A new car
Traveler’s check
1-carat diamond
Certificate of Deposit
Savings bond
Individual Retirement Account

6. Banking Services Storing Money Saving Money
Insured from robbery and bank failure
Saving Money
Savings and Checking
Money Market Accounts
Min amt of checks, interest rate can vary
Certificates of Deposit
Don’t touch for 1 or 2 yr, high
fixed int. rate

7. Services… Loans Mortgages Fractional reserve banking
Lend money to people and charges interest
Default
Mortgages
A loan for buying real estate
Interest

9. Services Credit Cards Simple Interest Compound Interest
Mini loans
Simple Interest
Money paid on the principal
Compound Interest
Money paid on the principal and simple interest
The amount of interest paid out by banks is less than the interest charged on loans

10. For Example
You deposit $100 in a savings account at 5% simple interest. You will make $5 in a year if paid annually.
If you leave that $105 in account your compound interest would be 5% on $105 = $5.25. Instead of just 5% on the. $100

12. Electronic Banking ATMs Debit Cards Home Banking
Online banking
Automatic Clearing Houses
Automatically pays bills
Stored Value Cards
Gift Cards, Phone Cards, Smart cards issued to college students