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Money and Banking. Business Essentials, 7 th Edition Ebert/Griffin. Instructor Lecture PowerPoints. PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College.

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Business essentials 7 th edition ebert griffin

Money and Banking

Business Essentials, 7th EditionEbert/Griffin

Instructor Lecture PowerPoints

PowerPoint Presentation prepared by

Carol Vollmer Pope Alverno College

© 2009 Pearson Education, Inc.


All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

© 2009 Pearson Education, Inc.

2


L e a r n i n g o b j e c t i v e s
L E A R N I N G O B J E C T I V E S reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

After reading this chapter, you should be able to:

  • Define money and identify the different forms that it takes in the nation’s money supply.

  • Describe the different kinds of financial institutions that comprise the U.S. financial system and explain the services they offer.

  • Explain how financial institutions create money and describe the means by which they are regulated.

  • Discuss the functions of the Federal Reserve System and describe the tools that it uses to control the money supply.

© 2009 Pearson Education, Inc.


L e a r n i n g o b j e c t i v e s cont d
L E A R N I N G O B J E C T I V E S (cont’d) reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

After reading this chapter, you should be able to:

  • Identify three important ways in which the money and banking system is changing.

  • Discuss some of the institutions and activities in international banking and finance.

© 2009 Pearson Education, Inc.


What s in it for me
What’s in It for Me? reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

By understanding this chapter’s discussion of money and banking, you’ll benefit in the following way:

  • The chapter explains what money is, where it comes from, how the supply of money grows, how it is created and controlled, and the kinds of services available to money users from the financial services industry.

© 2009 Pearson Education, Inc.


The characteristics of money
The Characteristics of Money reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • Money must have:

    • Portability

    • Divisibility

    • Durability

    • Stability

© 2009 Pearson Education, Inc.


The functions of money
The Functions of Money reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

Medium of Exchange

Store of Value

Measure of Worth

© 2009 Pearson Education, Inc.


The money supply
The Money Supply reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • M1: Spendable Money Supply

    • Currency (paper money and coins)

    • Checks

    • Checking accounts—demand deposits in banks

  • M2: M1 + Convertible Money Supply

    • Time deposits

    • Money market mutual funds

    • Savings accounts

© 2009 Pearson Education, Inc.


Figure 15 1 money supply growth
FIGURE 15.1 Money Supply Growth reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

© 2009 Pearson Education, Inc.


The u s financial system
The U.S. Financial System reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • Financial Institutions

    • Commercial Banks

      • Companies that accept deposits that they use to make loans, earn profits, pay interest to depositors, and pay dividends to owners

    • Savings and Loan Associations (S&Ls)

      • Accept deposits, make loans, and are owned by investors

    • Mutual Savings Banks

      • All depositors are owners of the bank, so all profits are divided proportionately among depositors via dividends

    • Credit Unions

      • A nonprofit, cooperative financial institution owned and run by its members; promotes thrift

© 2009 Pearson Education, Inc.


The u s financial system cont d
The U.S. Financial System (cont’d) reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • Non-Deposit Institutions

    • Unlike commercial banks, inflowing funds are intended for purposes other than earning interest for depositors

      • Pension funds

      • Insurance companies

      • Finance companies

      • Securities investment dealers

© 2009 Pearson Education, Inc.


Figure 15 2 the prime rate
FIGURE 15.2 The Prime Rate reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

© 2009 Pearson Education, Inc.


Special financial services

Individual Retirement Accounts (IRAs) reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

Trust Services

International Services

Currency exchange

Letters of credit

Banker’s acceptance

Financial Advice and Brokerage Services

Electronic Funds Transfer (EFT)

Automated Teller Machines (ATMs)

Special Financial Services

© 2009 Pearson Education, Inc.


Figure 15 3 global dispersion of atms
FIGURE 15.3 Global Dispersion of ATMs reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

© 2009 Pearson Education, Inc.


Figure 15 4 how banks create money
FIGURE 15.4 How Banks Create Money reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

© 2009 Pearson Education, Inc.


Regulation of the banking system
Regulation of the Banking System reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • Federal Deposit Insurance Corporation (FDIC)

    • Preserves confidence in the financial system by supervising banks and insuring deposits in banks and thrift institutions

    • Commercial banks pay fees for membership in the FDIC

    • The FDIC guarantees the safety of all deposits of every account owner up to the current maximum of $250,000

    • The FDIC maintains the right to examine the activities and accounts of all member banks

© 2009 Pearson Education, Inc.


The federal reserve system
The Federal Reserve System reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • The Fed: The Nation’s Central Bank

    • Structure

      • Board of governors

      • Reserve banks

      • Open market committee

      • Member banks

      • Other depository institutions

© 2009 Pearson Education, Inc.


Figure 15 5 the twelve federal reserve districts
FIGURE 15.5 The Twelve Federal Reserve Districts reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

© 2009 Pearson Education, Inc.


The federal reserve system cont d
The Federal Reserve System reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.(cont’d)

  • Functions

    • Banking for the government

    • Banking for banks

    • Controlling the money supply

    • Controlling inflation

© 2009 Pearson Education, Inc.


Controlling the money supply
Controlling the Money Supply reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • Monetary Policy

    • The Fed manages the nation’s economic growth by managing money supply and interest rates

  • Tools of the Fed

    • Reserve requirements

    • Discount rate controls

    • Open market operations

    • Selective credit controls

© 2009 Pearson Education, Inc.


The changing money and banking system
The Changing Money and Banking System reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • Anti-Terrorism Regulations

    • Bank Secrecy Act (BSA)

    • U.S. Patriot Act

      • Customer Identification Program (CIP)

© 2009 Pearson Education, Inc.


The impact of electronic technologies
The Impact of Electronic Technologies reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • Check 21

    • Allows banks to present a substitute check for payment instead of the original check

  • Blink Credit Cards

    • A “contactless” payment system

  • Debit Cards

    • Allow the transfer of money between accounts

    • Used with point-of-sale (POS) terminals

© 2009 Pearson Education, Inc.


The impact of electronic technologies cont d
The Impact of Electronic Technologies (cont’d) reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • Smart Cards

    • Credit-card-size plastic cards with an embedded computer chip that can be programmed with “electronic money”

  • E-Cash

    • Money that moves via digital transmissions on the Internet, outside the established network of banks, checks, and paper currency overseen by the Fed

© 2009 Pearson Education, Inc.


International banking and finance
International Banking and Finance reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

  • World Bank

    • Provides a limited scope of financial services

  • International Monetary Fund (IMF)

    • Promotes the stability of exchange rates

    • Provides temporary, short-term loans to member countries

    • Encourages members to cooperate on international monetary issues

    • Encourages development of a system for international payments

© 2009 Pearson Education, Inc.


Key terms

automated teller machine (ATM) reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

banker’s acceptance

check

checking account (demand deposit)

commercial bank

credit union

currency (cash)

debit card

discount rate

e-cash

electronic funds transfer (EFT)

Federal Deposit Insurance Corporation (FDIC)

Federal Reserve System (the Fed)

finance company

float

individual retirement account (IRA)

insurance company

International Monetary Fund (IMF)

letter of credit

M1

M2

M3

monetary policy

Key Terms

© 2009 Pearson Education, Inc.


Key terms cont d

money reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

money market mutual fund

mutual savings bank

open-market operations

pension fund

point-of-sale (POS) terminal

prime rate

reserve requirement

revenue recognition

revenues

Sarbanes-Oxley Act of 2002 (Sarbox)

savings and loan association (S&L)

securities investment dealer (broker)

selective credit controls

Key Terms (cont’d)

© 2009 Pearson Education, Inc.


Key terms cont d1

short-term solvency ratio reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

smart card

solvency ratio

statement of cash flows

tax services

time deposit

trust services

World Bank

Key Terms (cont’d)

© 2009 Pearson Education, Inc.


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