1. Chapter 17 Financial Services 1 ©2008 Thomson/South-Western

2. Chapter 17 Financial Services 2 Banks and Nonbanks Bank — financial institution that must accept demand deposits, make consumer and commercial loans, and buy and sell currency and government securities Nonbank — financial institution whose primary purpose is to offer financial products and services other than deposits and loans

3. Chapter 17 Financial Services 3 Major Types of Banks Commercial banks — full-service, serve all types of customers Savings institutions — emphasize loans for residential mortgages; include savings and loans and mutual savings banks Credit unions — nonprofit associations whose services are restricted to members

4. Chapter 17 Financial Services 4 Regulating Banks Federal Reserve System (Fed) Federal Deposit Insurance Corporation (FDIC) National Credit Union Share Insurance Fund (NCUSIF)

5. Chapter 17 Financial Services 5 Types of Nonbanks Finance companies Insurance companies Pension funds Mutual funds Securities and investment firms Financial services companies

6. Chapter 17 Financial Services 6 Common Banking Services Checking accounts Loans – Secured loan — loan backed by something of value owned by the borrower (collateral) – Unsecured loan — loan not backed by collateral – Interest rates Prime rate Fixed interest rate Variable interest rate

7. Chapter 17 Financial Services 7 Technology and Financial Services Electronic funds transfer (EFT) — transferring money by computer rather than by check Direct deposit — electronic transfer of a paycheck directly from employer’s bank account into employee’s bank account Automatic teller machine (ATM) — computer terminal that enables bank customers to deposit, withdraw, or transfer funds with a bank-provided plastic card

8. Chapter 17 Financial Services 8 Investment Instruments Interest-bearing checking accounts Savings accounts Savings bonds Certificates of deposit (CDs) Money market accounts Mutual funds Treasury instruments — Treasury bills, notes, and bonds

9. Chapter 17 Financial Services 9 Investment Goals Liquidity — ease of turning an investment into cash without significant loss Safety — high risk vs. lower earning potential Growth — trade-off between investment growth and a stable income from the investment

10. Chapter 17 Financial Services 10 Investment Trading Stock exchanges – New York Stock Exchange (NYSE) – National Association of Securities Dealers (NASDAQ) Stock indexes – Dow Jones Industrial Average Index – NASDAQ Market Index – Standard & Poor’s 500 Index