ch. 24 money & banking standard ee 2.3, 3.3, pfl 1.5, 1.6
TRANSCRIPT
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CH. 24 MONEY & BANKINGStandard EE 2.3, 3.3, PFL 1.5, 1.6
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MONEY
• Money has 3 functions• Medium of exchange• Store of value• Measure of value
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MONEY
• The American dollar is not based on gold or any other commodity• It’s value is based on the surety that someone will accept its value
(confidence in our government)
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FINANCIAL INSTITUTIONS• Financial institutions accept deposits of money (savings/checking
accounts, etc.) and use that money to make loans to others• Debtor must repay the principal plus interest on a pre-arranged schedule
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TYPES OF FINANCIAL INSTITUTIONS
• Types of institutions:• Commercial Banks – commercial businesses that offer full banking services to
individuals and businesses• Savings & Loan Associations (S&Ls) – small commercials businesses that take
deposits and issue mortgages• Credit Unions – not-for-profit associations of members that take deposits and
offer loans
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FDIC• Federal Deposit Insurance Corporation (FDIC) insures bank accounts for up
to $250,000 (formed after the Great Depression)• Prevents depositors from losing savings when banks fail• Give depositors confidence in banking institutions
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THE FED• The Federal Reserve – the nation’s central bank
• Oversees and regulates large commercial banks• Acts as the national government’s bank
• Keeps federal deposits• Sells US Savings Bonds & Treasury Bills• Manages the nation’s currency
$850,000 in new $20 Bills
The Fed Headquarters – Washington DC
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MONETARY POLICY
• The Fed also Conduct’s Monetary Policy – government management of the economy through controlling the supply of money & credit• Two major tools:
• Discount rate – rate of interest charged when banks borrow money from the Fed• Reserve Requirement – amount of deposits that banks must keep on hand to
conduct business
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MONETARY POLICY• Manipulate the Discount Rate to encourage or discourage banks’
borrowing to make loans to their customers• Higher discount rate causes higher interest rates to decrease borrowing &
spending
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MONETARY POLICY• Manipulate the Reserve Requirement to increase or decrease amount
of money in circulation• Higher reserve requirement causes less money to be available to make loans
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STOCK MARKET• Investing in the stock market is a way to build wealth, but comes
with a risk• Companies that are publicly traded in the stock market face more
government regulation• Securities and Exchange Commission (SEC) oversees the stock market and
companies that are traded there
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SHAREHOLDERS• Investors by shares of a corporation (stocks) and earn profit in two ways:
• Sell stocks at a higher price than they were bought• Earn dividends when company distributes profits to investors• If the stock price drops, shareholders will lose money, but only what they invested
(limited liability)
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STOCK INDICES• Stock Indices give a quick view of the value of the stock market
• Dow Jones Industrial Average – index of 30 largest companies traded on the stock market
• NASDAQ – Index of 3,000 technology stocks traded on the stock market