Chapter 20 - Understanding Business PDF

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This is the summary for the materials from chapter 20 in book, including main contents and key words definition....

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Chapter 20 Money, Financial Institutions, and the Federal Reserve

20-1 Money — Anything people generally accept as payment for goods and services. Barter — The direct trading of goods or services for other goods or services. - 5 standard for a userful form of money are: + Portability + Divisibility + Stability + Durability + Uniqueness Electronic money (e-money): is a newer form, online payment (ex: PayPal, banks’ app) 20-2 Money supply: the amount of money the Federal Reserve Bank makes available for people to buy goods and services Quantitative easing (QE): The Fed can create more money when its believes that money is needed to get the economy moving again M1 — Money that can be accessed quickly and easily (coins, paper money, traveler’s checks, etc.). M2 — M1 plus money that may take a little more time to obtain (savings accounts, mutual funds, etc.). M3 — M2 plus big deposits like institutional money market funds *Managing Inflation and the money supply - Inflation: the rise in price in which more money was putted into the economy with the same amount of goods/services - Deflation: decrease in price because prices would go down because there would be an oversupply of goods/services compared to the money available for them - The size of the money supply can affect employment and economic growth or decline. *The global exchange of money - 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. Control of the money supple *Basics about the Federal Reserve - Five major parts: 1. Board of governors 2. Federal Open Market Committee (FOMC) 3. Twelve Federal Reserve banks

4. Three advisory councils 5. Member banks of the system *How the Federal Reserve manage money supply

20-3 *The Establishment of the Federal Reserve System - A cash shortage problem in 1907 led to the creation of the Federal Reserve System. - Under the Federal Reserve Act of 1913, all federally chartered banks had to join the Federal Reserve. *Banking and the Great Depression - The stock market crash led to bank failures in the early 1930s. - In 1933 and 1935, Congress passed legislation to strengthen the banking system, including the establishment of federal deposit insurance. 20-4 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.

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Service provided by commercial banks: + Demand deposit (checking account): money can be withdrawn anytime on demand from the depositor. + Time deposit (saving account): the bank can require prior notice before the owner withdrawn money + Certificate of deposit (CD): a saving account that earns interest to be delivered at the end of the certificate’s maturity date

* I ns t i t ut i o nso ft heU. Sb a nki ngs y s t e m: - S a v i ng sa n dLo anAs s o c i a t i o n s( S &L ’ s ) + Fi na n c i a li n s t i t ut i o nt ha ta c c e p t ss a v i n g sa n dc h e c k i n gd e p o s i t s ,a n dp r o v i d e sh o me mo r t g a g el o a n s +Pu r p o s ei st opr o mo t eh o meb u y i n gwi t hmo r t g a g e s - Cr e di tUn i o n s + No n p r o fit ,me mb e r o wn e dfin a nc i a lc o o p e r a t i v e s + Offe r sb a n ki n gs e r v i c e st oi t sme mb e r swi t hh i g hi nt e r e s tr a t ec h e c ki n ga c c ou n t sa nd l o ws h o r t t e r ml o a n s + Or g a n i z e db yg o v e r nme nta g e nc i e s , c o r p o r a t i o n s ,u ni o n s ,a n dp r o f e s s i o n a la s s o c i a t i o n - Ot h e rFi n an c i a lI ns t i t u t i on s( Non b a n k s ) + No n b a n k sa r ei n s u r a n c ec o mp a n i e s , p e n s i o nf un d s ,b r o k e r a g efir ms , c o mme r c i a l fin a n c ec o mpa n i e s , a n dc o r p or a t efin a n c i a ls e r vi c e s - Pe ns i o nf unds— Amo un t so fmo n e yp u ta s i d eb yc o r po r a t i o n s ,n o n p r o fito r g a n i z a t i on s , oru n i o n st oc o v e rp a r to ft h efin a n c i a ln e e d so fme mb e r swh e nt h e yr e t i r e 2 0 5 Fe de r a lDe po s i tI ns ur a nc eCor po r a t i o n( FDI C)— Ani nd e p e nd e n ta g e n c yo ft h eU. S. g o v e r n me n tt h a ti n s u r e sb a n kd e p o s i t su pt o$2 5 0 , 0 00 . Sa v i ng sAs s o c i a t i onI ns ur anc eFund( SAI F)— Pa r to ft h eFDI Ct h a ti n s u r e sh o l d e r so f a c c o u n t si ns a v i n g sa ndl o a na s s o c i a t i o n s . Na t i o na lCr e di tUni onAdmi ni s t r a t i o n( NCUA)— Pr o v i d e su pt o$2 5 0 , 0 0 0c o v e r a g ep e r i n d i v i d u a ld e p o s i t orp e ri n s t i t u t i o n 2 0 6 El e c t r o ni cf undst r ans f e r( EFT)s y s t e m — Co mp u t e r i z e ds y s t e mt h a te l e c t r o n i c a l l yp e r f or ms fin a n c i a lt r a n s a c t i o n ss u c ha sma ki n gp u r c h a s e s ,p a yi n gb i l l s ,a n dr e c e i v i n gp a y c h e c k s . De bi tc a r d— Se r v e st h es a mef un c t i o na sc h e c k s ;i twi t h d r a wa l sf u n d sf r o mac h e c ki n ga c c o u n t . Sma r tc a r d— Co mb i n a t i o no fac r e d i tc a r d ,de b i tc a r d , p h o nec a r d , d r i v e r ’ sl i c e n s ec a r d , a n d mo r e . 2 0 7 * Mak i ngTr ans a c t i o nsi nOt he rCo unt r i e s - Le t t e rofc r e di t— Ap r o mi s eb yt h eb a n kt op a yt h es e l l e rag i v e na mo un ti fc e r t a i n c o n d i t i o n sa r eme t .

Ba n k e r ’ sa c c e pt a n c e— Ap r omi s et h a tt h eba n kwi l lp a ys o mes p e c i fie da mo unta ta pa r t i c u l a rt i me . - Mo n e ye x c h a n g ea l l o wsc o mp a n i e st og ot oab a n ka n de x c h a n g ec u r r e n c i e st ou s ei na pa r t i c u l a rc o u nt r y( i . e . d o l l a r sf o re u r o s ) . * TheWo r l dBa nkandt heI nt e r nat i o na lMo ne t a r yFund - Wor l dBa n k— Le n d smo s to fi t smo n e yt ol e s s de v e l o p e dn a t i o n st oi mp r o v et h e i r pr o du c t i v i t ya n dhe l pr a i s es t a nd a r d so fl i v i n ga n dq u a l i t yo fl i f e . - I n t e r n a t i o n a lMo n e t a r yFun d( I MF)— Fo s t e r sc o o p e r a t i v emo n e t a r ypo l i c i e st ha t s t a b i l i z et h ee x c h a n g eo fo nena t i o n a lc u r r e n c yf ora n o t he r . -...