introduction to business, money and financial institutions slide 1 of 65 ch. 12. money and financial...
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Introduction to Business, Money and Financial Institutions Slide 1 of 65
Ch. 12. Money and Financial InstitutionsCh. 12. Money and Financial Institutions
Objective: Analyze the functions and characteristics of money and financial institutions.
Why its importantUnderstanding the way money and financial institutions work is crucial to understanding the economy.
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The History of Money The History of Money In the monetary system goods and services are indirectly exchanged using money, which can then be exchanged for other goods and services.
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The History of Money The History of Money Money can be anything that people accept as a standard for payment.•Coins•Currency•Checks•Credit/Debit Cards
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The History of Money The History of Money In other times and places people have used shells, stones, corn or other crops, animals, parrot feathers, and even gopher tails for money.
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Functions of Money Functions of Money The three basic functions of money are:
1. It is a medium of exchange2. It is a standard of value 3. It is a store of value
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Characteristics of Money Characteristics of Money For money to carry out its functions, it must have several characteristics. Money must be:
• Stable in value• Scarce• Accepted• Divisible into parts • Portable and durable
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Figure12.2 HOW BANKS DO BUSINESS
Banks are businesses that provide financial services to make a profit.
What would happen to a bank’s profits if deposits suddenly decreased?
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Graphic OrganizerFunctions and Characteristics of MoneyFunctions and Characteristics of Money
Graphic OrganizerGraphic Organizer
FUNCTIONS
• Medium of exchange• Standard of value• Store of value
CHARACTERISTICS• Stable• Scarce• Accepted• Divisible• Portable• Durable
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Banking Banking The banking system is the main type of financial institution, or organization for managing money, in our economy. 3 Standard Types of banks•Commercial•Credit Union•Savings & Loan
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Banking Banking Ways of doing banking that do not involve a physical locationOnline Banking- Allows users to do a lot the activities on-line that are conducted at the physical locationVirtual Bank - A bank that is completely online with no physical location.
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Banking or Financial SoftwareBanking or Financial SoftwareThese programs can aid with handling financial needs. Such as budgeting, tracking money, and saving.
•Microsoft Money•Quicken•Microsoft Excel.
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Commercial Banks Commercial Banks Commercial banks offer a full range of services such as checking and savings accounts, loans, and financial advice.
They are often called full-service banks.
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Commercial Banks Commercial Banks To make a profit, commercial banks usually charge much more interest on the money they lend than the interest they pay on savings accounts.
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Savings and Loan Associations Savings and Loan Associations Savings and loan associations were originally set up to offer savings accounts and home mortgage loans. The purpose of the savings and loan associations was to encourage people to save money and make it easier to buy a home or
start a business.
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Savings and Loan Associations Savings and Loan Associations Savings and loan associations charged lower interest on loans and paid higher interest on savings.
In the 1980s about 20 percent of savings and loans failed.
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Credit Unions Credit Unions Credit unions are nonprofit banks set up by organizations for their members to use.
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Credit Unions Credit Unions Credit unions offer members a full range of services, including credit cards, checking accounts, and loans.Credit unions offer low-interest loans and pay high interest rates on savings accounts
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Functions of a bank Functions of a bank
• Storing Money• Transferring Money• Lending/Loaning Money
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Storing Money Storing Money A bank account is a record of how much money a customer has put in to or taken out of a bank. The money put in a bank is called a deposit.The money put in a bank is called a deposit.
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Storing Money Storing Money Checking accounts are used for storing money in the short term so you can draw on it easily if you want to go shopping or pay a bill.
Savings accounts are used for storing money over a long period of time.
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Storing Money Storing Money Interest is a rate the bank pays you for keeping your money there.
If a bank pays you 5 percent interest per year on a $1,000 savings account, you’ll have earned $50 after one year.
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Transferring MoneyTransferring MoneyBanks make it easy to transfer money from one person or business to another. Today more banks are using electronic funds transfer (EFT) to move money around. With EFT, money is transferred from one account to another through a network of computers.
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Lending Money Lending Money The money you deposit in a bank makes it possible for the bank to lend money to other customers.
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Lending Money Lending Money Most bank loans require some form of collateral (something valuable you put up for a loan.)
The four main types of loans that banks offer are:•A mortgage loan•A commercial loan•An individual loan•A line of credit
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Other Financial ServicesOther Financial ServicesMany banks provide financial advice on managing and investing your money.
You can also store valuable items, such as jewelry and certificates, in safety-deposit boxes. Many banks offer credit cards.Banks also manage trust funds, such as an inheritance.
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Other Financial Institutions Other Financial Institutions Mortgage companies provide loans specifically for buying a home or business. Insurance companies not only provide protection against things like fire and theft, but also offer loans to businesses. Brokerage firms that sell stocks and bonds may also offer a wide range of financial services to its customers
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Federal Reserve SystemThe Fed is central banking organization in the US The six functions of the Fed are:
• Clearing checks • Acting as the federal government’s fiscal agent • Supervising member banks • Regulating the money supply • Setting reserve requirements • Supplying paper currency