MONEY & BANKING. MONEY Functions of Money ïƒ¹ Medium of exchange...
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Functions of MoneyMedium of exchangeExchange $ for g & sStandard of valueAllow for value comparisonStore of valueSaving for future use
Characteristics of MoneyOur $ is generally acceptableCan be counted and measured accuratelyDurableConvenientInexpensive to produceEasy to control supply in our economy
The Value of Our CurrencyOur currency has a value because the government says it does!!
Kinds of MoneyCurrency
Checks (= demand deposits)
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
Bank ServicesChecking accountsEasysecure..good recordsSavings accountsNOT a demand deposit notice for large withdrawals requiredEarn interestAllow banks to make loansLoansMost important role in economyAn amount of $ borrowed for certain period of timePay $ back PLUS interestHelps economy to grow helps people to start or expand businesses
Banks are a MAJOR business in our economy.
Other Financial InstitutionsSavings & Loans associationsFunctions like banksMutual Savings banksOwned by depositors where profits are paid to themCredit UnionsServes ONLY its membersMembers usually work for one company or a unit of government
The Federal Reserve System
Need for Govt RegulationCreated in 1913 by CongressRegulates banks activities to avoid widespread financial hardshipsCitizens demand that the government regulate because banks closed and customers lost money
How the Fed is OrganizedFederal Reserve Districts12 districts NC in district 5-- Richmond
How the Fed is Organized contdRun by a Board of Governors7 members- appointed by President for 14 year termsOpen Market Committee7 (B of G) and the presidents of 5 FR BanksRegulate nations $ supplyFederal Advisory Council12 bankers (private) one from each districtAdvise B of G and Open Market Council on nations business and banking problems
Functions of the FedProvide ServicesCollects and clears checksWire $-- FedwireSupply currency to banksGovernments bankStore tax money paid by citizensGovt checking accountsFederal govt debt recordsBonds (!!)
Supervise banksSets minimum amount of funds that must be kept on deposit
Functions of the Fed contdMakes loans to banksCharge banks a special interest rate Protect individuals and businesses that use banksTruth in Lending LawsControl money supplyControls nations money supply by influencing amount of $ people borrow
Inflation rise in price of goods and servicesRecession slowdown in economic activitycontrols money supply in order to keep a balance between inflation and recession
Banking HistoryEarly History:1st attempt - 1791 to 1836 not successful -- States rights issueWithout a national banking system, there were hundreds of different currencies and rapid inflation of prices
Banking History contd National Banking Act of 1863created a dual system of banks - both state and federal banks.uniform US currency
Banking History contd Glass-Steagall Banking Act 1933
Great Depression reactionCreated the FDIC to insure all deposits up to $100,000 changed in 2008 to $250,000Helps prevent runs on banks
Banking History contd Savings and Loan Crisis of the late 1980sThe government relaxed regulations on banks in the late 1970sMany 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
Banking History contd Gramm-Leach-Bliley Act of 1999Permits bank holding companies more freedom to engage in a wider series of financial optionsForces banks to put in safeguards to protect your money