1. Understand the role of finance in business
Essential Standard 4.00
Understand the role of finance in business

2. Understand the banking system.
Objective 4.02
Understand the banking system.

3. Topics Classification of financial institutions
Common payment services
Federal Reserve System

4. Classification of financial institutions

5. Classification of Financial Institutions
Depository
Earns money to finance their business by accepting deposits from customers
Types include:
Commercial banks, which offer many different services, including savings, loans, and checking accounts.
Savings and loan associations (S&Ls), which traditionally specialize in savings and home loans, but now are very similar to commercial banks.
Mutual savings banks, which are owned by the depositors and specialize in savings and home loans.
Credit unions, which are not-for profit, serve their members only, and are owned by their depositors.

6. Classification of Financial Institutions continued
Non-depository
Earns money to finance their business by selling specific services such as policies, investments, and loans
Types include:
Life insurance companies
Investment companies
Consumer finance companies
Mortgage companies
Check-cashing outlets
Pawnshops

7. Classification of Financial Institutions continued
Which characteristics of financial institutions are used for comparing them?
Services –Does the institution offer savings, checking, loans, credit cards, safe deposit boxes, trusts, etc?
Safety – Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses?
Convenience – Does the institution offer the access you desire?
Fees and Charges – What are the short and long-term costs of the services?
Restrictions – Are there minimum balances that must be kept, or other restrictions?
What kinds of questions may be asked about each characteristic?
What kinds of questions may be asked about each characteristic?
Services –Does the institution offer savings, checking, loans, credit cards, safe deposit boxes, trusts, etc?
Safety – Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses?
Convenience – Does the institution offer the access you desire?
Fees and Charges – What are the short and long-term costs of the services?
Restrictions – Are there minimum balances that must be kept, or other restrictions?

8. Common payment services

9. Common payment services
Opening a checking account
Signing a signature card is the first step
Endorsing a check for deposit
An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else.
Different types of endorsements:
Blank
Full
Restrictive

10. Blank Endorsement Consists of endorser’s name only
Anyone who has a check with a blank endorsement may cash it.

11. Special Endorsement Transfers payment of a check to someone else.
Can be used to make payment on a debt
Juan Delgado is the payee on this check.

12. Restrictive Endorsement
Limits use of the check so it can be deposited only to endorser’s account.
Safest type of endorsement, as it cannot be cashed by a thief or someone who finds the check.
Safest endorsement to use when mailing a check for deposit or when using the ATM for deposit.

13. Check Writing Procedures
Ensure all information is written in the check register first, and ensure checks are written in numerical order.
Write the date the check is written.
Write the payee’s name.

14. Check Writing Procedures continued
Write in the numerical amount of the check.
Write in the amount of the check in words.
Write in the purpose of the check.
Sign the check.

15. Bank Reconciliation What is a bank reconciliation?
A bank reconciliation is the document created to show how the two balances (your own record of your checking account and the bank’s record of your account) were brought into agreement.
What is an outstanding check?
Outstanding checks are checks that have not been deducted from the bank statement balance
What is a bank reconciliation?
A bank reconciliation is the document created to show how the two balances (your own record of your checking account and the bank’s record of your account) were brought into agreement.
What is an outstanding check?
Outstanding checks are checks that have not been deducted from the bank statement balance.

16. Steps in a Bank Reconciliation
Obtain the monthly bank statement.
Determine checks paid.
Find differences between the monthly bank statement and monthly check register.
Calculate the adjusted balance.
If the balances do not agree, check the steps again and recalculate.

17. The Federal Reserve System

18. The Federal Reserve System
What is the Federal Reserve System?
The Federal Reserve (Fed) is a centralized banking system
Why does it exist?
The Fed exists to supervise and regulate member banks and help serve the public efficiently.
Who participates?
All national banks are required to be members of the Fed; state banks have the option of joining.
How is it organized?
The Fed has 12 districts
What is the Federal Reserve System?
The Federal Reserve (Fed) is a centralized banking system.
Why does it exist?
The Fed exists to supervise and regulate member banks and help serve the public efficiently.
Who participates?
All national banks are required to be members of the Fed; state banks have the option of joining.
How is it organized?
The Fed has 12 districts.

19. The Federal Reserve System continued
Services provided by the Fed:
Supervision of banks
Participation of open market activities
Acting as a clearinghouse
Holding reserves
Approving bank mergers
Supplying paper currency
Managing the discount rate

20. ANATOMY OF A CHECK

21. KEY Name – name and address of the person who writes the check.
Payee – the person to whom the check is written.
Check number – each check for each personal account has a unique number to aid in reconciliations and reduce fraud
KEY
Name – name and address of the person who writes the check.
Amount of check in words – this helps to avoid confusion or illegible writing
Amount of check in numbers – to avoid fraud, leave no space between the dollars and the cents
Purpose of check – why the check was written
Date check is written – to aid with bank reconciliations.
Drawee – the financial institution that pays the check
Drawer’s signature – the person who writes the check signs here.
Bank’s Routing Number – the number banks use to process the check.
Drawer’s account number – used to efficiently process checks.