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MONEY & BANKING. MONEY Functions of Money  Medium of exchange  Exchange $ for g & s  Standard of value  Allow for value comparison  Store of value.

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Presentation on theme: "MONEY & BANKING. MONEY Functions of Money  Medium of exchange  Exchange $ for g & s  Standard of value  Allow for value comparison  Store of value."— Presentation transcript:

1 MONEY & BANKING

2 MONEY

3 Functions of Money  Medium of exchange  Exchange $ for g & s  Standard of value  Allow for value comparison  Store of value  Saving for future use  Medium of exchange  Exchange $ for g & s  Standard of value  Allow for value comparison  Store of value  Saving for future use

4 Characteristics of Money  Our $ is generally acceptable  Can be counted and measured accurately  Durable  Convenient  Inexpensive to produce  Easy to control supply in our economy  Our $ is generally acceptable  Can be counted and measured accurately  Durable  Convenient  Inexpensive to produce  Easy to control supply in our economy

5 The Value of Our Currency  Our currency has a value because the government says it does!!

6 Our banking system

7 Kinds of Money  Currency  Checks (= demand deposits)  Traveler’s checks CCCCurrency CCCChecks (= demand deposits) TTTTraveler’s checks

8 Banks and the Money Supply Banks and the Money Supply  Money supply– total amount of $ available for use as a medium of exchange  Banks– VITAL in our economy  Banks hold currency and offer demand deposit services MMMMoney supply– total amount of $ available for use as a medium of exchange BBBBanks– VITAL in our economy BBBBanks hold currency and offer demand deposit services

9 Bank Services  Checking accounts  Easy…secure..good records  Savings accounts  NOT a demand deposit… notice for large withdrawals required  Earn interest  Allow banks to make loans  Loans  Most important role in economy  An amount of $ borrowed for certain period of time  Pay $ back PLUS interest  Helps economy to grow… helps people to start or expand businesses  Checking accounts  Easy…secure..good records  Savings accounts  NOT a demand deposit… notice for large withdrawals required  Earn interest  Allow banks to make loans  Loans  Most important role in economy  An amount of $ borrowed for certain period of time  Pay $ back PLUS interest  Helps economy to grow… helps people to start or expand businesses

10 Banks are a MAJOR business in our economy.

11 Other Financial Institutions  Savings & Loans associations  Functions like banks  Mutual Savings banks  Owned by depositors where profits are paid to them  Credit Unions  Serves ONLY its members  Members usually work for one company or a unit of government SSSSavings & Loans associations FFFFunctions like banks MMMMutual Savings banks OOOOwned by depositors where profits are paid to them CCCCredit Unions SSSServes ONLY its members MMMMembers usually work for one company or a unit of government

12 The Federal Reserve System

13

14 Need for Gov’t Regulation  Created in 1913 by Congress  Regulates banks activities to avoid widespread financial hardships  Citizens demand that the government regulate because banks closed and customers lost money  Created in 1913 by Congress  Regulates banks activities to avoid widespread financial hardships  Citizens demand that the government regulate because banks closed and customers lost money

15 How the Fed is Organized  Federal Reserve Districts  12 districts… NC in district 5-- Richmond  Federal Reserve Districts  12 districts… NC in district 5-- Richmond

16  Run by a Board of Governors  7 members- appointed by President for 14 year terms  Open Market Committee  7 (B of G) and the presidents of 5 FR Banks  Regulate nation’s $ supply  Federal Advisory Council  12 bankers (private)– one from each district  Advise B of G and Open Market Council on nation’s business and banking problems  Run by a Board of Governors  7 members- appointed by President for 14 year terms  Open Market Committee  7 (B of G) and the presidents of 5 FR Banks  Regulate nation’s $ supply  Federal Advisory Council  12 bankers (private)– one from each district  Advise B of G and Open Market Council on nation’s business and banking problems How the Fed is Organized cont’d

17 Functions of the Fed  Provide Services  Collects and clears checks  Wire $-- Fedwire  Supply currency to banks  Government’s bank  Store tax money paid by citizens  Gov’t checking accounts  Federal gov’t debt records  Bonds (!!)  Supervise banks  Sets minimum amount of funds that must be kept on deposit  Provide Services  Collects and clears checks  Wire $-- Fedwire  Supply currency to banks  Government’s bank  Store tax money paid by citizens  Gov’t checking accounts  Federal gov’t debt records  Bonds (!!)  Supervise banks  Sets minimum amount of funds that must be kept on deposit

18 Functions of the Fed cont’d  Makes loans to banks  Charge banks a special interest rate  Protect individuals and businesses that use banks  Truth in Lending Laws  Control money supply  Controls nation’s money supply by influencing amount of $ people borrow  Makes loans to banks  Charge banks a special interest rate  Protect individuals and businesses that use banks  Truth in Lending Laws  Control money supply  Controls nation’s money supply by influencing amount of $ people borrow

19  Inflation– rise in price of goods and services  Recession– slowdown in economic activity  controls money supply in order to keep a balance between inflation and recession  Inflation– rise in price of goods and services  Recession– slowdown in economic activity  controls money supply in order to keep a balance between inflation and recession

20 Banking History Early History:  1 st attempt - 1791 to 1836  not successful -- States rights issue  Without a national banking system, there were hundreds of different currencies and rapid inflation of prices Early History:  1 st attempt - 1791 to 1836  not successful -- States rights issue  Without a national banking system, there were hundreds of different currencies and rapid inflation of prices

21 Banking History cont’d Banking History cont’d National Banking Act of 1863  created a dual system of banks - both state and federal banks.  uniform US currency National Banking Act of 1863  created a dual system of banks - both state and federal banks.  uniform US currency

22 Banking History cont’d Glass-Steagall Banking Act 1933  Great Depression reaction  Created the FDIC to insure all deposits up to $100,000 … changed in 2008 to $250,000  Helps prevent “runs” on banks Glass-Steagall Banking Act 1933  Great Depression reaction  Created the FDIC to insure all deposits up to $100,000 … changed in 2008 to $250,000  Helps prevent “runs” on banks

23 Banking History cont’d Savings and Loan Crisis of the late 1980s  The government relaxed regulations on banks in the late 1970s  Many banks failed due to bad investments.  The United States government stepped in to bail out the S & Ls  It cost the government about $200 billion Savings and Loan Crisis of the late 1980s  The government relaxed regulations on banks in the late 1970s  Many banks failed due to bad investments.  The United States government stepped in to bail out the S & Ls  It cost the government about $200 billion

24 Banking History cont’d Gramm-Leach-Bliley Act of 1999  Permits bank holding companies more freedom to engage in a wider series of financial options  Forces banks to put in safeguards to protect your money Gramm-Leach-Bliley Act of 1999  Permits bank holding companies more freedom to engage in a wider series of financial options  Forces banks to put in safeguards to protect your money


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