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Chapter 19

    19 Understanding Money and
                       Banking
             http://www.slideshare.net/Subjectmaterial
Sr. Chapter   Chapter Heading
No.No.
1.    3 Understanding the Global context of business (110212)
2.    4 Conducting Business Ethically and Responsibly (250212)
3.    6 Organizing the Business Enterprise (030312)
4.    7 Understanding Entrepreneurship and Small Business (100312)
5.    8 Managing Human Resources (240312)
6.    9 Understanding Employee Motivating, Satisfying & Leadership (3103, 0704)
7.    11 Understanding Marketing Processes and Consumer Behavior (140412)
8.    16 Managing Quality and Productivity (280412)
9.    17 Managing Information Systems and Communication Technology (0505)
10.   19 Understanding Money and Banking (1205)
11.   20 Intermediate Term and Lease Financing
1. WHAT IS MONEY

2. THE US FINANCIAL SYSTEM

3. THE FEDERAL RESERVE SYSTEM

4. THE CHANGING MONEY AND BANKING
   SYSTEM

5. INTERNATIONAL BANKING AND FINANCE
Money
   Any object that portable, divisible, durable,
      and stable and serves as a medium of
     exchange, a store of value, and a unit of
                     account

   Any object generally accepted as payment
             for goods and services
Characteristics of
        a Good Money System
   Divisible
   Portable
   Durable           12
                                         TH E UN IT ED ST AT ES OF A M ER ICA
                                         TH E U N ITED STAT ES OF AM ERIC A

                                         T H I S N O T E IS L E G A L T E N D E R



                           F O R A L L D E B T S , P U B L I C A N D P R IV A T E




                                                            A
                                                                                    FED ER AL RE SE RVE N O TE




                                                                                                                   L 70 7 44 62 9F



                                                                                                                 W A S H IN G T O N , D .C.   12




    Hard to
                                                                                                                                                   H 293



                           L 70 74 46 29 F


                      12                                                                                            S E RIES                  12
                                                                                                                       19 85





                                                                                          O N E D O LLA R
                                                                                          O N E D O LLAR




    Counterfeit
   Stable in Value
Functions of Money
   Medium of exchange
        a single medium of exchange for goods
        and services instead of barter
   Store of value
       can be used for future purchases
   Unit of account
        allows measurement of the relative value
        of goods and services
Credit Cards
   Plastic money
   They are popular because
       Convenient
       Safe
       Very profitable for the issuer
            11 to 20 % interest on dues paid to card issuers
            Merchants pay fee to card issuers



                                                                7
The Money Supply



                                          Time Deposits
               Demand                                        Total
Currency   +              =   Total   +     & Money     =
               Deposits        M1         Market Accts.     M2 *SA

  *SA = Seasonally Adjusted
The money supply could be explained as follows
 Liquidity is how fast something can be turned into cash. Students

  may recall this concept from Chapter 18.
 Currency includes all coins and paper money spent to purchase goods
  and services. To the surprise of many, currency is a small portion of
  the money supply (only about 20-25%). Traveler’s checks, money
  orders, and cashier’s checks are all considered currency.
 Demand deposits are the other part of M1. These are deposits held
  at banks that depositors can write checks on for immediate payments.
  No specific notice has to be provided to the banks. Checks are used in
  about 70% of the transactions in the U.S. but numbers are decreasing
  as more consumers begin to use online services and automatic
  payment options.
 Total M1 includes the currency and demand deposits of the money

  supply.
 Total M2 includes time deposits and money market accounts (funds of

  short term, low risk fin securities purchased with the assets of investor
  owners, pooled by a non-bank institution) plus the total currency and
  demand deposits from M1. Students should be aware that time
  deposits are generally referred to as savings accounts.
Financial Institutions
   Traditionally consisted of four financial pillars
        Chartered banks
        Alternate banks (trust companies, credit unions)
        Life insurance companies and specialized lending and saving
         intermediaries
        Investment dealers

                Commercial Bank: Federal or state-chartered
               financial institutions accepting deposits that it
                    uses to make loans and earn profits

    Differences are now blurred due to changes in financial industry regulations
Special Financial Services
   Pension and Trust Services
   International Services
       Currency exchange
       Letter of Credit (LC)
   Financial Advice and Brokerage Service
   Automated teller machine ATM
   Electronic Fund Transfers
                                             11
THE FEDERAL RESERVE SYSTEM

   Central bank, which acts as the
    government’s bank, serves member
    commercial banks, and controls the
    nation’s money supply




                                         12
Functions of Fed
1.       The govt bank:
          How many notes (bills) to produce, how many to destroy
          Lends money to the govt
2.       The Banker’s bank
          Banks borrow money on interest from fed
3.       Check Clearing
4.       Controlling the money supply
5.       Monetary policy;
          money supply and interest rates
                                                               13
THE CHANGING MONEY AND
     BANKING SYSTEM
   Electronic Technologies
       Debit Cards:
            Plastic card that allows an individual to transfer
             money between accoutns
       Point of Sale Terminal
            Electric device that accepts debit card transactions
       E-cash
            Money that moves among consumers and
             businesses via digital electronic transmissions
                                                                  14
International Bank Structure
   World Bank
       UN agency that provides a limited scope of
        financial services, such as funding national
        improvement in undeveloped countries
   International Monetary Fund (IMF)
       UN agency consisting of about 150 nations that
        have combined resources to promote stable
        exchange rates, provide temporary short-term
        loans, and serve other purposes

                                                       15

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Chap 19 understanding money and banking

  • 1. Chapter 19 19 Understanding Money and Banking http://www.slideshare.net/Subjectmaterial
  • 2. Sr. Chapter Chapter Heading No.No. 1. 3 Understanding the Global context of business (110212) 2. 4 Conducting Business Ethically and Responsibly (250212) 3. 6 Organizing the Business Enterprise (030312) 4. 7 Understanding Entrepreneurship and Small Business (100312) 5. 8 Managing Human Resources (240312) 6. 9 Understanding Employee Motivating, Satisfying & Leadership (3103, 0704) 7. 11 Understanding Marketing Processes and Consumer Behavior (140412) 8. 16 Managing Quality and Productivity (280412) 9. 17 Managing Information Systems and Communication Technology (0505) 10. 19 Understanding Money and Banking (1205) 11. 20 Intermediate Term and Lease Financing
  • 3. 1. WHAT IS MONEY 2. THE US FINANCIAL SYSTEM 3. THE FEDERAL RESERVE SYSTEM 4. THE CHANGING MONEY AND BANKING SYSTEM 5. INTERNATIONAL BANKING AND FINANCE
  • 4. Money  Any object that portable, divisible, durable, and stable and serves as a medium of exchange, a store of value, and a unit of account  Any object generally accepted as payment for goods and services
  • 5. Characteristics of a Good Money System  Divisible  Portable  Durable 12 TH E UN IT ED ST AT ES OF A M ER ICA TH E U N ITED STAT ES OF AM ERIC A T H I S N O T E IS L E G A L T E N D E R F O R A L L D E B T S , P U B L I C A N D P R IV A T E A FED ER AL RE SE RVE N O TE L 70 7 44 62 9F W A S H IN G T O N , D .C. 12 Hard to H 293 L 70 74 46 29 F 12 S E RIES 12 19 85  O N E D O LLA R O N E D O LLAR Counterfeit  Stable in Value
  • 6. Functions of Money  Medium of exchange  a single medium of exchange for goods and services instead of barter  Store of value  can be used for future purchases  Unit of account  allows measurement of the relative value of goods and services
  • 7. Credit Cards  Plastic money  They are popular because  Convenient  Safe  Very profitable for the issuer  11 to 20 % interest on dues paid to card issuers  Merchants pay fee to card issuers 7
  • 8. The Money Supply Time Deposits Demand Total Currency + = Total + & Money = Deposits M1 Market Accts. M2 *SA *SA = Seasonally Adjusted
  • 9. The money supply could be explained as follows  Liquidity is how fast something can be turned into cash. Students may recall this concept from Chapter 18.  Currency includes all coins and paper money spent to purchase goods and services. To the surprise of many, currency is a small portion of the money supply (only about 20-25%). Traveler’s checks, money orders, and cashier’s checks are all considered currency.  Demand deposits are the other part of M1. These are deposits held at banks that depositors can write checks on for immediate payments. No specific notice has to be provided to the banks. Checks are used in about 70% of the transactions in the U.S. but numbers are decreasing as more consumers begin to use online services and automatic payment options.  Total M1 includes the currency and demand deposits of the money supply.  Total M2 includes time deposits and money market accounts (funds of short term, low risk fin securities purchased with the assets of investor owners, pooled by a non-bank institution) plus the total currency and demand deposits from M1. Students should be aware that time deposits are generally referred to as savings accounts.
  • 10. Financial Institutions  Traditionally consisted of four financial pillars  Chartered banks  Alternate banks (trust companies, credit unions)  Life insurance companies and specialized lending and saving intermediaries  Investment dealers Commercial Bank: Federal or state-chartered financial institutions accepting deposits that it uses to make loans and earn profits Differences are now blurred due to changes in financial industry regulations
  • 11. Special Financial Services  Pension and Trust Services  International Services  Currency exchange  Letter of Credit (LC)  Financial Advice and Brokerage Service  Automated teller machine ATM  Electronic Fund Transfers 11
  • 12. THE FEDERAL RESERVE SYSTEM  Central bank, which acts as the government’s bank, serves member commercial banks, and controls the nation’s money supply 12
  • 13. Functions of Fed 1. The govt bank:  How many notes (bills) to produce, how many to destroy  Lends money to the govt 2. The Banker’s bank  Banks borrow money on interest from fed 3. Check Clearing 4. Controlling the money supply 5. Monetary policy;  money supply and interest rates 13
  • 14. THE CHANGING MONEY AND BANKING SYSTEM  Electronic Technologies  Debit Cards:  Plastic card that allows an individual to transfer money between accoutns  Point of Sale Terminal  Electric device that accepts debit card transactions  E-cash  Money that moves among consumers and businesses via digital electronic transmissions 14
  • 15. International Bank Structure  World Bank  UN agency that provides a limited scope of financial services, such as funding national improvement in undeveloped countries  International Monetary Fund (IMF)  UN agency consisting of about 150 nations that have combined resources to promote stable exchange rates, provide temporary short-term loans, and serve other purposes 15

Notas do Editor

  1. http://www.slideshare.net/Subjectmaterial