Chap020 (full version use this one)

Money, Financial Institutions, and the Federal ReserveChapter 20... • Money Supply -- The amount of money the Federal Reserve makes available for people.. HOW LONG DOES PAPER MONEY LAST?

Money, Financial Institutions, and the Federal Reserve

Chapter 20

1 Explain what money is and what makes money

5 Briefly trace the causes of the banking crisis

starting in 2008 and explain how the government protects your funds during such crises.

6 Describe how technology helps make banking

more efficient.

7 Evaluate the role and importance of international

banking, the World Bank, and the International Monetary Fund.

LEARNING GOALS

Chapter

Twenty

• Bernanke is a former Princeton economics

professor

• Former President George W Bush appointed

Bernanke Chairman of the Federal Reserve in 2006

BEN BERNANKE

Federal Reserve

Profile

• Almost every factor related to the economy is influenced by the decisions he

makes

NAME that COMPANY

Chapter

Twenty

This bank-like store in Austin, Texas, was

designed to serve low-income clients who don’t have traditional bank accounts Customers pay

a one-time $10 fee that allows them to cash checks and put the money onto debit cards

Name that company!

• Money Anything people generally accept as

payment for goods and services.

or services

LG1

What is

Money?

• Money Supply The amount of money the Federal Reserve makes available for people The money

supply is referred to as:

paper money, travelers’ checks, etc.).

obtain (savings accounts, mutual funds, etc.).

NEW MONEY

Paper Money Printed in 2010 (In $ Billions)

Source: Bloomberg Businessweek, December 20, 2010

LG2

What is the

Money

Supply?

HOW LONG DOES PAPER MONEY LAST?

Source: Federal Reserve, www.federalreserve.gov , accessed September 2011.

LG2

What is the

Money

Supply?

MONEY FACTS

What You Might Not Know About What’s in Your Wallet

Source: Fast Company, February 2011.

LG2

What is the

Money

Supply?

• In 2009, the U.S printed 26,000,000 bills a day!

• Each penny costs 1.6¢ and each nickel costs 6¢

to make

• The most-tracked bill on WheresGeorge.com has travelled over 7,600 miles in 4 years!

• 2/3 of all U.S $100 bills are outside the U.S

• 90% of paper money has traces of cocaine!

• Falling dollar value: The amount of goods and

services you can buy with a dollar decreases.

• Rising dollar value: The amount of goods and

services you can buy with a dollar increases.

• What makes the dollar fall or rise is the position

of the U.S economy relative to other global economies

EXCHANGING MONEY GLOBALLY

The Global

Exchange of

Money

LG2

The IMPACT of a FALLING DOLLAR

• Overseas demand for U.S products rise

• A favorable exchange rate for U.S companies

increases profits in foreign markets

LG2

The Global

Exchange of

Money

• U.S tourism increases

which is good for hotels, resorts, theme parks,

and retailers that serve international travelers

1 The Board of Governors

2 The Federal Open

The 12 FEDERAL RESERVE

• The Fed uses three basic tools:

commercial banks’ checking and savings accounts they must keep in the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.

selling of government bonds.

3 Discount Rate The interest rate the Fed charges

for loans to member banks.

MANAGING the MONEY SUPPLY

LG2

Basics About

the Federal

Reserve

CHECK-CLEARING PROCESS THROUGH the FEDERAL RESERVE

• What is money?

supply?

Reserve? What other functions does it perform?

PROGRESS ASSESSMENT

Progress

Assessment

• A cash shortage problem in 1907 led to the

creation of the Federal Reserve System

The ESTABLISHMENT of the FEDERAL RESERVE SYSTEM

The History of

Banking and the

Need for the

Fed

• Under the Federal

Reserve Act of 1913, all federally chartered banks had to join the Federal Reserve

LG3

LARGEST BANK FAILURES

LG3

The History of

Banking and the

Need for the

Fed

Source: http://www.FDIC.gov , accessed July 2011.

• Commercial Bank A profit-seeking organization that receives deposits from individuals and

corporations in the form of checking and savings accounts and uses those funds to make loans.

• A commercial bank has two types of customers:

• Demand Deposit The technical name for a

checking account; money is available on demand from the depositor.

require a prior notice before you make a withdrawal.

earns interest, to be delivered on the certificate’s maturity date.

• Banks are using the Internet and social media to communicate with Gen Y customers.

• Today 29 million Bank of America customers use online banking

• 6.5 million customers use smartphones for mobile banking

• Banks are following other companies leads and

embracing social media

BANKING on SOCIAL MEDIA

(Social Media in Business)

• The bank teller mistakenly gives you $320

instead of the $300 you asked for

• You bring the error to her attention, but she

disagrees she miscounted the money

• You wonder whether to just keep the extra $20

even though you know her accounts will not

balance at the end of the day

• What are your alternatives? What do you do?

WHAT to TELL the TELLER

(Making Ethical Decisions)

• Savings and Loan Associations (S&Ls) A

financial institution that accepts both savings and checking deposits and provides home mortgage loans.

• Often known as thrift institutions because their

original purpose was to promote customer thrift and home ownership

SAVINGS and LOAN ASSOCIATIONS

Savings and

Loan

Associations

LG4

• Credit Unions

Nonprofit, member-owned financial cooperatives that offer the full variety of

banking services to their members.

CREDIT UNIONS

Credit Unions

• As nonprofits, credit

unions enjoy an exemption from federal income taxes

LG4

• Nonbanks Financial institutions that accept no

deposits, but offer many of the services provided by regular banks Nonbanks include:

- Corporate financial services

• About ¼ of American households don’t have a

bank account

• Mango Store is a bank-like facility in Austin,

Texas Clients pay a one-time $10 fee that lets

them cash as many checks as they want by

putting the money onto debit cards

• Mango hopes its customers will increase their

earning power and remain customers over time

The RISE of the NONBANK

(Spotlight on Small Business)

WHAT ATTRACTS CUSTOMERS

• Why did the U.S need a Federal Reserve Bank?

• What is the difference between a bank, a savings and loan association, and a credit union?

• What is a consumer finance company?

PROGRESS ASSESSMENT

Progress

Assessment

• The Federal Deposit Insurance Corporation

government that insures bank deposits up to

$250,000.

loan associations.

individual depositor per institution.

PROTECTING DEPOSITORS’ MONEY

Protecting

Your Funds

LG5

• Electronic Funds Transfer

transaction are sent from one computer to another so funds can be transferred quickly and more economically.

same function as a check; it withdrawals funds from a checking account.

TECHNOLOGICAL ADVANCEMENTS in BANKING

Using Technology

to Make Banking

More Efficient

LG6

• Smart Card A

combination of a credit card, debit card, phone card, driver’s license, and more.

• Letter of Credit A promise by the bank to pay the seller a given amount if certain conditions are met.

pay some specified amount at a particular time.

• Money exchange allows companies to go to a

bank and exchange currencies to use in a particular country (i.e dollars for euros)

• World Bank Lends most of its

money to less-developed nations to improve their productivity and help raise standards of living and quality

of life.

monetary policies that stabilize the exchange of one national currency for another About 185 countries are

a part of the IMF.

LEADING INSTITUTIONS in INTERNATIONAL BANKING

• A debt crisis in Europe; Japan trying to recover from its earthquake and tsunami; major disruptions in the

Middle East; China and Brazil are having problems with high inflation; and rising food prices are happening all

over the planet.

because of the high food prices

with answers to the global issues that have become

• What are some of the causes for the banking

crisis beginning in 2008?

• What is the role of the FDIC?

• How does a debit card differ from a credit card?

• What is the World Bank and what does it do?

• What is the IMF and what does it do?

PROGRESS ASSESSMENT

Progress

Assessment

20-39