BANKING Measuring the Money Supply The money supply

BANKING

Measuring the Money Supply The money supply is all the money available in the United States economy.

The Money Supply is made up of two parts M 1 consists of assets that have liquidity, or the ability to be used as, or easily converted into, cash. Components of M 1 include all currency, and demand deposits. Demand deposits are the money in checking accounts.

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& M 2 consists of all of the assets in M 1, plus deposits in savings accounts and money market mutual funds. A money market mutual fund is a fund that gets money from small investors to purchase government or corporate bonds.

Banking Services Banks perform many functions and offer a wide range of services to consumers.

How Banks Make a Profit The largest source of income for banks is the interest they receive from customers who have taken loans. Interest is the price paid for the use of borrowed money.

How Banks Make a Profit Money leaves bank Interest and withdrawals to customers Money enters bank Deposits from customers BANK Interest from borrowers Fees for services Bank retains required reserves Money loaned to borrowers: • business loans • home mortgages • personal loans Bank’s cost of doing business: • salaries • taxes • other costs

Types of Financial Institutions Commercial Banks Commercial banks offer checking services, accept deposits, and make loans. Savings and Loan Associations were originally chartered to lend money for home-building in the mid-1800 s. Savings Banks Savings banks traditionally served people who made smaller deposits and transactions than commercial banks wished to handle.

Types of Financial Institutions Credit Unions Credit unions are cooperative lending associations for particular groups, usually employees of a specific firm or government agency. Finance Companies Finance companies make installment loans to consumers.

Electronic Banking

Type of Accounts Checking- deposited funds are taken out through checks, debit cards, ATM, telephone banking and in person, usually don’t earn interest Savings –Deposits earn interest, usually no minimum balance, bank can change interest rate Money Market – like savings account, interest rate usually increases at certain balance levels, usually require minimum balance, may limit withdrawals

Savings Clubs – scheduled transfers from checking account to savings account Certificates of Deposit (CDs)Earn a fixed interest rate for selected term and may have minimum balance requirements and penalty for withdrawal before end of selected term

Bank Terms Monthly Service Charge- Bank fee to service your account. Depends on account type, account balance, number and type of transactions Transaction- Debit (withdrawal of funds) or credit (deposit of funds). Debit card acts like a check immediately reducing bank balance Overdraft Protection- use savings account balance or line of credit to provide funds to cover shortage in your checking account

Banking Overdraft Protection Fee- charge to coverdraft on your account. Stop payment fee- charge to invalidate a check before it is cleared. Used when a check is lost or stolen ATM fee- charge for using ATM services of different banks

Transaction fee – charge for transactions exceeding limit allowed in basic service fee Electronic wire fee- charge for incoming or outgoing wire transfer Basic monthly service fee- may depend on number of transactions and average daily or monthly balance

The Federal Reserve System - The Federal Reserve Bank= central bank of the US - Supervise/ Regulate Banks - Distribute coin and paper money to banks and credit unions - Bank for other banks and the federal government and foreign banks

What else can the Fed do? • Conduct nation’s monetary policy (maintain employment, keep prices stable, keep interest rates low) • Distribute info about the economy • Research regional, national and global economies • Provide the nation with a safe, flexible, stable money and financial system

Twelve reserve banks serve the operating arm of the central bank • Where are the 12 Federal Reserve District? • Boston, NY, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco

What are the 12 Federal Reserve Districts? The twelve Reserve Banks are named after the city in which they are located: 1. 2. 3. 4. Boston (A) New York (B) Philadelphia (C) Cleveland (D) 5. 6. 7. 8. Richmond (E) Atlanta (F) Chicago (G) St. Louis (H) 9. Minneapolis (I) 10. Kansas City (J) 11. Dallas (K) 12. San Francisco(L)

Interest Rates - Prices that people pay to borrow money or are paid to lend money - Higher interest rates provide incentives for people to save more and borrow less and vice versa

Inflation - Prices increase faster than income - A dollar buys less and less over time

Jerome Powell - Chairman of the Fed - Sworn in on February 5, 2018 -Janet Powell his predecessor was the first woman to hold the position.

Exit Card 1. What are the two parts of the money supply? Explain 2. Define: Mortgages 3. What is the largest source of a banks income? Define 4. What does ATM stand for? 5. What are others ways that banks make money? 6. What is the Federal Reserve? Give three functions of the Federal Reserve. 7. How many Federal Reserve Districts are their? Give Five. 8. Define: Inflation 9. What are interest rates? Explain 10. Who is the Chairman of the Fed today?