15 chapter business essentials, 8 th edition ebert/griffin money and banking instructor lecture...
TRANSCRIPT
15
chapter
Business Essentials, 8th EditionEbert/Griffin
Money and Banking
Instructor Lecture
PowerPointsPowerPoint Presentation prepared by Carol Vollmer Pope Alverno College
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
After reading this chapter, you should be able to:1. Define money and identify the different forms that
it takes in the nation’s money supply.2. Describe the different kinds of financial institutions
that comprise the U.S. financial system and explain the services they offer.
3. Explain how financial institutions create money and describe the means by which they are regulated.
L E A R N I N G O B J E C T I V E SL E A R N I N G O B J E C T I V E S
15-2Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
After reading this chapter, you should be able to:
4. Discuss the functions of the Federal Reserve System and describe the tools that it uses to control the money supply.1. Identify three important ways in which the
money and banking system is changing.2. Discuss some of the institutions and activities in
international banking and finance.
L E A R N I N G O B J E C T I V E S (cont.)L E A R N I N G O B J E C T I V E S (cont.)
15-3Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
What’s in It for Me?
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.
15-4Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Characteristics of Money
• Money must have:– Portability
– Divisibility
– Durability
– Stability
15-5Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Functions of Money
Medium of ExchangeMedium of ExchangeMedium of ExchangeMedium of Exchange
Store of ValueStore of ValueStore of ValueStore of Value
Measure of WorthMeasure of WorthMeasure of WorthMeasure of Worth
15-6Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Money Supply
• 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
15-7Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
FIGURE 15.1 Money Supply Growth
15-8Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The U.S. Financial System
• 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
15-9Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The U.S. Financial System (cont.)
• 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
15-10Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
FIGURE 15.2 The Prime Rate
15-11Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Special Financial Services
• Individual Retirement Accounts (IRAs)
• 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)
15-12Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
FIGURE 15.3 Global Dispersion of ATMs
15-13Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
FIGURE 15.4 How Banks Create Money
15-14Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Regulation of the Banking System
• Federal Deposit Insurance Corporation (FDIC)– Preserves confidence by supervising banks and insuring
deposits in banks and thrift institutions– Commercial banks pay fees for membership in the FDIC– Guarantees the safety of all deposits of every account
owner up to the current maximum of $250,000– Maintains the right to examine the activities and accounts
of all member banks
15-15Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Federal Reserve System
• The Fed: The Nation’s Central Bank– Structure
• Board of governors
• Reserve banks
• Open market committee
• Member banks
• Other depository institutions
15-16Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
FIGURE 15.5 The Twelve Federal Reserve Districts
15-17Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Federal Reserve System (cont.)
– Functions• Banking for the government
• Banking for banks
• Controlling the money supply• Controlling inflation
15-18Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Controlling the Money Supply
• 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
15-19Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Changing Money and Banking System
• Government Intervention– Government Emergency Investment– Assurances of Repayment
• Anti-Crime and Anti-Terrorism Regulations– Bank Secrecy Act (BSA)– U.S. Patriot Act
• Customer Identification Program (CIP)
15-20Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Impact of Electronic Technologies
• 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
15-21Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Impact of Electronic Technologies (cont.)
• 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
15-22Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
International Banking and Finance• 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
15-23Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Key Terms
automated teller machine (ATM)banker’s acceptancecheckchecking account (demand deposit)commercial bankcredit unioncurrency (cash)
debit carddiscount ratecorporation (FDIC)e-cashelectronic funds transfer (EFT)Federal Deposit Insurance Federal Reserve System (the Fed)finance company
15-24Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Key Terms (cont.)
floatindividual retirement account (IRA)insurance companyInternational Monetary Fund (IMF)letter of creditM1M2M3
monetary policymoneymoney market mutual fundmutual savings bankopen-market operationspension fundpoint-of-sale (POS) terminalprime ratereserve requirement
15-25Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Key Terms (cont.)
revenue recognitionrevenuesSarbanes-Oxley Act of 2002 (Sarbox)savings and loan association (S&L)securities investment dealer (broker)selective credit controls
short-term solvency ratiosmart cardsolvency ratiostatement of cash flowstax servicestime deposittrust services World Bank
15-26Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
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.
2715-27Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall