Presentation Transcript

1. CH 11, Section 3, p. 300 Terms: Federal Reserve System 301 aka “The Fed” The US’ central bank “owned” by member banks Controlled by the federal government President appoints Board of governors Chairman of the Fed Congress approves
2. Central bank 301 a bank that can lend to other banks in times of need. National banks required to join State-chartered banks may opt to join. Since banks pay to join, they become owners of the Federal Reserve System.
3. Federal Reserve notes 301 paper currency used by the national system. Has replaced all other forms of paper currency. Inconvertible fiat money, since 1934
4. Run on the bank 301 a rush by panicked depositors to withdraw their funds from a bank before it fails Before the video clip: In the small town of Bedford Falls, George Bailey, who dreams of leaving for a big career and life, finds himself constantly giving up his dream to keep his father’s saving and loan bank, and all the people it helps, operating. When he gets married, in October 1929, he and his new bride, Mary, are going on a dream honeymoon vacation, with $2000 of his own hard-earned cash. What happens????? Be ready to tell me at the end>
5. How much was $2000 in 1929? $25,000.00 using the Consumer Price Index $20,700.00 using the GDP deflator $48,000.00 using the value of consumer bundle $79,600.00 using the unskilled wage $101,000.00 using the Production Worker Compensation $109,000.00 using the nominal GDP per capita $275,000.00 using the relative share of GDP
6. Bank holiday 301 brief period where government required banks to close. In 1933, was done to give Congress time to pass emergency legislation reorganizing the banks. Banks would have to prove that they could operate effectively and safely or they could not open Restore public confidence Took a long time to end the public fear.
7. Commercial bank 303 handle business and commerce interests. Demand deposit accounts (DDAs) Checking accounts Funds may be removed easily by check or ATM
8. Thrift institution 303 separate financial institution Investor accounts Now allow DDAs
9. Mutual Savings Bank 303 (MSB) depositor-owned financial organization Benefits only its depositors. Savings bank Many MSBs sold stock and lost their exclusive member-only benefit status.
10. NOW Account 303 negotiable order of withdrawal. Checking account that pays interest. More popular since 1980.
11. Savings and Loan Association 303 (S&L) depository institution that invests the majority of its depositors funds in home mortgages. Mortgage payments and interest sustain depositors’ accounts.
12. Credit union 303 non-profit service cooperative Owned by and operated for the members Members usually in the same company or type of work. Lower fees and interest rates for members Easier financing
13. Share draft account 303 Interest-earning checking account Compete with NOW accounts.
14. Deregulation 304 to remove or relax government restrictions on business. 1980s 1. max interest rate on savings accounts phased out 2. NOW accounts allowed nation-wide. 3. all depository institutions could borrow from Fed in time of need.
15. creditor 305 a person or institution to whom money is owed. A lender, direct or indirect
16. Chapter 12 Financial Markets Section 1 p. 313, Terms: Saving 313 abstinence of spending, not spending Savings 313 dollars that become available when people abstain from spending (do not consume) A more biased look at the same MP scene If time (nothing to do with econ)…..SMP
17. Financial system 314 a network of savers, investors, money managing institutions that work to transfer savings to investors.
18. Certificate of deposit 314 a receipt showing that an investor has made a loan to a bank—or a government or corporate bond. Considered a savings
19. Financial assets 314 claims on the property and income of a borrower.
20. Financial intermediaries 314 financial institutions that lend the funds that investors save to borrowers
21. Nonbank financial institution 315 nondepository institutions that channel savings to borrowers. Life insurance companies Pension funds Real estate investment trusts
22. Finance company 315 a firm that specializes in making loans directly to consumers Buys installment contracts from merchants who sell goods on credit. Merchants sell credit accounts of debtors to the finance companies.
23. Bill consolidation loan 315 consumers use this loan to pay off all other debts Debtor now pays one loan at one interest rate Advice: do NOT use your other credit sources after you do this…..
24. premium 315 the installment price one pays for insurance Monthly, quarterly, annually Insurance companies store so much money from these accounts and often loan money to others.
25. Mutual fund 316 a company sells stock in itself to investors Invests funds in stocks and bonds of other companies. Used by investors as they would use ordinary stock. Most funds have expert managers so risk is low. EX. General Motors would use a mutual fund to raise money to buy stock in Ford and Coca Cola, etc..
26. Net asset value 316 (NAV) the value of the mutual fund divided by the number of shares issued by the mutual fund. = market value of the mutual fund share.
27. Pension 316 a regular payment made for income security of the investor Collected after investor Works a number of years in a career Reaches a certain age Suffers an injury (disability)
28. Pension fund 316 an annuity fund set up to collect investor income and disburse pension payments. Run by private firms and various levels of government. Payments are stored money Pension funds invest these huge amounts of money in stocks and bonds Private companies make profit doing this Government insures a large money pool to pay pensions
29. Real estate investment trust 316 (REIT) a company organized to make loans to construction companiesthat build homes. Note: An indicator used to measure the growth of the economy.
30. Investment Project Revisited Most of you have been doing the simple part so far: Daily tracking and recording or your stock’s price. Have you been doing it on Graph paper? Excel or other spreadsheet? Have you been getting data and analyzing for your final report?
31. Hwk Assessments, Class Work, to Know
32. Assessments: Checking for Understanding 1 To give the country a central bank that could lend to other banks in time of need
33. Assessment 3 To bring the state banks under control and to help finance the US Civil War
34. Assessment 4 To strengthen banking and insure deposits
35. Assessment 5 Savings banks Savings and loan associations Credit unions
36. Assessment 6 Deregulation High interest rates Inadequate financial reserves fraud
37. Assessments: Checking for Understanding 1 Saving is not spending Savings are dollars left over after you buy your necessities and not spent on other goods and services.
38. Image, p. 301 Question To ensure customer deposits in the event of a bank failure. Current emergency legislation until 2014 = $250,000 Jan. 1, 2014 = $100,000
39. Image, p. 302 question At present, there are almost 2/3s as many state banks as there are national banks
40. Images, p. 315 Question Financial assets—claims on the property/income of borrowers New term for the current financial disaster: Toxic assets: claims on property/income of borrowers that will probably go bankrupt or into foreclosure Means anyone owning these assets will take a large loss or not get any of the debts back.