Chapter 12
Money and
Financial Institutions
Learning Objectives
1.Describe the functions and
characteristics of money.
2.Explain the 3 main functions
of a bank.
Why It’s Important
Understanding the way money and financial
institutions work is crucial to understanding the
economy.
Ch 10, 11, 12 -
Slide 2
Money
Monetary system – G&S are exchanged using
money; can then be exchanged for other G&S
Money can be anything that people accept as a
standard for payment
EX: In other times and places people have used
shells, stones, corn, parrot feathers, and
even gopher tails for money
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Slide 3
Functions of Money
Medium of Exchange – rather than barter
people exchange money to get the goods and
services they want
Standard of Value – Money allows us to place
a value on objects (How much does this cost?)
Store of Value – Money holds its value over
time…you can also store it and accumulate it to
become more wealthy
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Slide 4
Characteristics of Money
Scarcity – a limited amount available (value)
Accepted – people have faith in its value
Divisible – can be broken down into smaller
pieces/parts
Portable – can be transported easily
Durable – has a long life/does not fall apart
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Slide 5
Banking
The banking system is the main type of
financial institution, or organization for
managing money, in our economy
Banks have three main services 1)storing
money, 2)transferring money, 3)lending money
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Slide 6
?????????????????????????
• What are three characteristics of
money (there are five)?
–
–
–
–
–
Scarcity
Accepted
Divisible
Portable
Durable
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Slide 7
Storing Money
A bank account is a record of how much money a
customer has put in to or taken out of a bank
Deposit – money put into a bank
Withdrawal – money taken out of the bank
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Slide 8
Transferring and Lending Money
-Interest - rate the bank pays you for keeping
your money there
- electronic funds transfer (EFT) used to move
money around by using computer networks
- Collateral – item of value you put up for a loan
- Mortgage - a deed to give the property to the
lender if the loan is not paid back
- Safety-deposit boxes – store valuables
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Slide 9
?????????????????????????
• What are the three services banks
offer?
– Storing Money
– Lending Money
– Transferring Money
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Slide 10
HOMEWORK
• Rd. Pages 201-205
• Questions 1-3 on Pg. 205
Ch 10, 11, 12 -
Slide 11
Learning Objectives
1.Compare the 3 types of
banks found in our economy.
2.Identify the functions of the
Federal Reserve System.
Why It’s Important
Understanding the way money and financial
institutions work is crucial to understanding the
economy.
Ch 10, 11, 12 -
Slide 12
HOW BANKS DO BUSINESS
Banks are businesses that provide financial services to make
a profit.
Ch 10, 11, 12 -
Slide 13
Types of Banks
Commercial banks - services such as
checking and savings accounts, loans, and
financial advice
Credit unions offer members a full range
of services, including credit cards, checking
accounts, and loans
Savings and Loan Associations purpose
was to encourage people to save money
and make it easier to buy a home.
Ch 10, 11, 12 -
Slide 14
Other Financial Institutions
Mortgage companies provide loans
specifically for buying a home or business.
Financial companies offer short term
loans to businesses
Insurance companies provide protections
against things like fire and theft
Brokerage firms sell stocks and bonds,
and other financial services
Ch 10, 11, 12 -
Slide 15
The Federal Reserve System
The Federal Reserve System (or Fed) is
the central banking organization in the
United States
• Set up in 1913 to end the periodic
financial panics that occurred during the
1800s and early 1900s
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Slide 16
Functions of the Fed
1. Clearing Checks
2. Acting as Federal Gov’t’s fiscal agent
3. Supervising member banks
4. Regulating the money supply
5. Setting reserve requirements
6. Supplying paper currency
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Slide 17
?????????????????????????
• What is the Federal Reserve?
– The central banking organization of the
United States
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Slide 18
HOMEWORK
• Review Key Concepts – Pg. 206
• Questions 2-5
Ch 10, 11, 12 -
Slide 19