1. Functions of the Fed Chapter 12 Presentation 2

2. What is the (Fed)Federal Reserve? The Central Bank of America Controls the American Money Supply 7 members of the Board of Governors (14 year terms with a new term every two years) Chairman (Ben Bernanke) and Vice Chairman are appointed by the President and approved by the Senate

3. Central Bank 12 banks coordinated by the Board of Governors Came as a result of the Federal Reserve Act of 1913 Other Ex- Britain’s Bank of England and the Bank of Japan

4. What Backs Money? The value of money in the US is really backed by nothing tangible Government stabilizes the value of money

5. Value of Money 1. Acceptability- we are confident that others will accept money for goods/services and resources 2. Legal Tender- deemed legal tender by the government (govt and private firms can specify money order or check) 3. Relative Scarcity- supply and demand *the supply of $$ determines purchasing power

6. Federal Reserve Districts

7. Routing Numbers and Cash

8. Quasi-Public Banks Blend of private and public ownership Each Federal Reserve Bank is owned by the private commercial banks in the district Board of Governors (a government body) controls the Fed’s policies

9. Banker’s Bank Provide the same service to banks as regular banks provide to the public Accept deposits and make loans to banks Typically $150 million a day in loans ***On September 11, 2001 the Fed loaned out $45 B!!!

10. FOMC Federal Open Market Committee Meets regularly in D.C. to direct the sale and purchase of securities on the open market (ex- bonds- this controls how much money is in supply) Buy bonds---- increase the $ supply Sell bonds----decrease the $ supply

11. Functions of the Fed 1. Issuing Currency- paper money in circulation 2. Setting reserve requirements and holding reserves 3. Lending money to banks and thrifts- at discount rate (interest rate the Fed charges)

12. Fed Functions 4. Providing for check collecting 5. Acting as a fiscal agent-spends large sums, buys/sells bonds 6. Supervising Banks- uncover fraud 7. Controlling the money supply

13. Life of Money in the US Denomination Life Expectancy (Years) of Bill $1 1.8 $5 1.3 $10 1.5 $20 2 $50 4.6 $100 7.4