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BUSINESS ESSENTIALS Fourth Edition PART 6 . . . . . . . . . . . . . . . . . . . . . . . . Understanding Financial Issues Ronald J. Ebert & Ricky W. Griffin Copyright ©2003 Prentice Hall, Inc. Chapter 14 Understanding Money and Banking

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Slide1 l.jpg

BUSINESS

ESSENTIALS

Fourth Edition

PART 6 . . . . . . . . . . . . . . . . . . . . . . . .

Understanding Financial Issues

Ronald J. Ebert & Ricky W. Griffin

Copyright ©2003 Prentice Hall, Inc.


Chapter 14 l.jpg

Chapter 14

Understanding Money and Banking


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“A banker is a fellow who lends you his umbrella when the sun is shining, and wants it back the minute it begins to rain.”~ Mark Twain


Key topics l.jpg
Key Topics sun is shining, and wants it back the minute it begins to rain.”

  • Money and its forms in the U.S.

  • U.S. financial institutions

  • How banks create money and how they are regulated

  • The Federal Reserve system

  • Changes in the financial industry

  • International banking and finance


What is money l.jpg
What Is Money? sun is shining, and wants it back the minute it begins to rain.”

  • Portability

  • Divisibility

  • Durability

  • Stability


The functions of money l.jpg
The Functions of Money sun is shining, and wants it back the minute it begins to rain.”

Medium of Exchange

Store of Value

Unit of Account


The cost of producing u s coins l.jpg
The Cost of Producing U.S. Coins sun is shining, and wants it back the minute it begins to rain.”

Golden Dollar 10.03 cents

Half Dollar 9.93 cents

Quarter 4.29 cents

Dime 1.88 cents

Nickel 3.13 cents

Penny .81 cents

Source: http://www.usmint.gov/faqs/circulating_coins


Just how much is a ton of money worth l.jpg
Just How Much Is a Ton of Money Worth? sun is shining, and wants it back the minute it begins to rain.”

Dollar Bills $908,000

Quarters $40,000

Pennies $3,632

Source: State of Michigan Office of Financial and Insurance Services, www.cis.state.mi.us/ofic/consumer/kids/ton_money


The money supply l.jpg
The Money Supply sun is shining, and wants it back the minute it begins to rain.”

  • M1: Spendable

    • Currency

    • Demand deposits

  • M2: Spendable plus Convertible

    • Time deposits

    • Money market mutual funds

    • Savings deposit


Money supply growth l.jpg

5.4 sun is shining, and wants it back the minute it begins to rain.”

5.0

4.4

4.0

3.4

3.0

Money Supply (trillions)

2.4

2.0

1.4

1.0

0.4

0

1964 1969 1974 1984 1984 1989 1994 2001

Money Supply Growth

M-2

M-1


Credit cards a major financial force l.jpg
Credit Cards sun is shining, and wants it back the minute it begins to rain.”A Major Financial Force

  • Credit cards accounted for almost half of all transactions for the year 2000

  • Credit cards are a large and growing business

Convenient for users

Highly profitable for issuers


U s financial institutions l.jpg
U.S. Financial Institutions sun is shining, and wants it back the minute it begins to rain.”

  • Commercial Banks

    • Diversification and mergers

    • Commercial interest rates

  • Savings and Loan Associations

  • Mutual Savings Banks


U s financial institutions13 l.jpg
U.S. Financial Institutions sun is shining, and wants it back the minute it begins to rain.”

  • Credit Unions

  • Non-Deposit Institutions

    • Pension funds

    • Insurance companies

    • Finance companies

    • Securities investment dealers


Special financial services l.jpg
Special Financial Services sun is shining, and wants it back the minute it begins to rain.”

  • Individual Retirement Accounts (IRAS)

  • Trust Services

  • International Services

    • Currency exchange

    • Letters of credit

    • Banker’s acceptance


Special financial services15 l.jpg
Special Financial Services sun is shining, and wants it back the minute it begins to rain.”

  • Financial advice and brokerage services

  • Automated teller machines

  • Electronic funds transfer


Banks as creators of money l.jpg

$100.00 $10.00 $90.00 $190.00 sun is shining, and wants it back the minute it begins to rain.”

90.00 9.00 81.00 271.00

81.00 8.10 72.90 343.00

72.90 7.29 65.61 409.51

65.61 6.56 59.05 468.56

Money held in Reserve by Bank

Money to Lend

Total Supply

Deposit

Banks As Creators of Money


The federal reserve system l.jpg

Structure sun is shining, and wants it back the minute it begins to rain.”

Board of governors

Reserve banks

Member banks

Functions

Banking for the government

Banking for banks

Controlling the money supply

The Federal Reserve System


Controlling the money supply the tools of the fed l.jpg
Controlling the Money Supply sun is shining, and wants it back the minute it begins to rain.”The Tools of the Fed

  • Reserve requirements

  • Discount rate controls

  • Open market operations

  • Selective credit controls


The changing money and banking system l.jpg
The Changing Money and Banking System sun is shining, and wants it back the minute it begins to rain.”

Deregulation

Interstate Banking


Electronic technologies a dramatic change l.jpg
Electronic Technologies sun is shining, and wants it back the minute it begins to rain.”A Dramatic Change

Debit Cards

Smart Cards

E-cash


The international payments process l.jpg
The International Payments Process sun is shining, and wants it back the minute it begins to rain.”

Olive Exchange

(Greece to U.S.)

Equipment Exchange

(U.S. to Greece.)

1

8

U.S. Importer

U.S. Bank

U.S. Exporter

2

6

7

3

4

5

Greek Exporter

Greek Bank

Greek Importer


Bolstering international trade l.jpg
Bolstering International Trade sun is shining, and wants it back the minute it begins to rain.”

International Monetary Fund (IMF)

  • Stable exchange rates

  • Temporary short-term loans

  • Cooperation on global monetary issues

  • International payments system

  • World Bank

    • Provides a limited scope of financial services


Chapter review l.jpg
Chapter Review sun is shining, and wants it back the minute it begins to rain.”

  • Define money and its forms in the U.S.

  • Describe U.S. financial institutions

  • Explain how banks create money and how they are regulated

  • Discuss the functions and tools of the Federal Reserve system

  • Identify how the financial industry is changing

  • Understand international banking and finance