Business Copyright 2005 Prentice Hall Inc 1 Business
Business Copyright 2005 Prentice- Hall, Inc. 1
Business Part Five: Understanding Financial Issues 18. Understanding Money And Banking 19. Understanding Securities And Investments 20. Understanding Financial And Risk Management Copyright 2005 Prentice- Hall, Inc. 2
Chapter 18 Understanding Money & Banking 18 -3
Business Chapter Outline üWhat Is Money? üThe U. S. Financial System üThe Federal Reserve System üThe Changing Money & Banking System üInternational Banking & Finance Copyright 2005 Prentice- Hall, Inc. 4
Business Characteristics Of Money • Portability • Divisibility • Durability • Stability Copyright 2005 Prentice- Hall, Inc. 5
Business Functions Of Money • Medium Of Exchange • Store Of Value • Unit Of Account Copyright 2005 Prentice- Hall, Inc. 6
Business Money Supply • Spendable Money = M 1 – Currency – Checks – Demand Deposits • Convertible Money = M 2 – M 1 – Time Deposits – Money Market Funds – Savings Deposits Copyright 2005 Prentice- Hall, Inc. 7
Business Money-Supply Growth Copyright 2005 Prentice- Hall, Inc. 8
Business Credit Cards • Not Part Of M 1 Or M 2 • Big Business – Convenient – Profitable For Credit Card Companies • Sources Of Profit – Cardholder = Annual Fees & Interest – Merchant = 2 -5% Fee Copyright 2005 Prentice- Hall, Inc. 9
Business Projected Consumer Bill Payments (2005) Total = $6. 74 Trillion Source: Wired, “The New Currency” April 2004, p. 59. Copyright 2005 Prentice- Hall, Inc. 10
Business U. S. Financial System • Issues – Diversification/Mergers – Interest Rates • Depository Institutions – Commercial Banks – Thrifts – Savings & Loans – Mutual Savings Banks – Credit Unions Copyright 2005 Prentice- Hall, Inc. 11
Business The Prime Interest Rate Copyright 2005 Prentice- Hall, Inc. 12
Business Nondepository Institutions • Pension Funds • Insurance Companies • Finance Companies • Securities Dealers Copyright 2005 Prentice- Hall, Inc. 13
Business Special Financial Services • Pension/Trust Services – Individual Retirement Accounts – Trust Services • International Services – Currency Exchange – Letters Of Credit – Banker’s Acceptances • Financial Advice/Brokerage Services • Automated Teller Machines • Electronic Funds Transfer Copyright 2005 Prentice- Hall, Inc. 14
Business Worldwide ATM Locations Copyright 2005 Prentice- Hall, Inc. 15
Business Commercial Banking Regulation • Federal Reserve System • Federal Deposit Insurance Corporation • Other State & Federal Agencies Copyright 2005 Prentice- Hall, Inc. 16
Business How Banks Create Money Copyright 2005 Prentice- Hall, Inc. 17
Business Federal Deposit Insurance Corporation • Insures Member Banks Deposits To $100, 000/Account • 1941 – 1980 Examined – Bank Practices – Accounts • Banks Deregulated- Depository Institutions Deregulation & Monetary Control Act Of 1980 Copyright 2005 Prentice- Hall, Inc. 18
Business Structure Of Federal Reserve System Board Of Governors Reserve Banks (12) Member Banks Copyright 2005 Prentice- Hall, Inc. 19
Business Functions Of The Fed • Government’s Bank • Banker’s Bank • Check Clearing • Controls Money Monetary Policy Copyright 2005 Prentice- Hall, Inc. Supply- 20
Business Check Clearing By Hand (1940 s) Source: Federal Reserve Bank of Atlanta, http: // www. frbatlanta. org/invoke. cfm? objectid=83 FD 414 A-9 AF 0 -11 D 5898400508 BB 89 A 83&method= display_body Copyright 2005 Prentice- Hall, Inc. 21
Business Clearing A Check Copyright 2005 Prentice- Hall, Inc. 22
Business Tools Of The Fed • Reserve Requirements • Discount Rate • Open-Market Operations • Selective Credit Controls Copyright 2005 Prentice- Hall, Inc. 23
Business Dual Prime Rate & Federal Discount Rate 2004 On 12/31 Of That Year Source: Federal Reserve Bank of St. Louis, http: // research. stlouisfed. org Copyright 2005 Prentice- Hall, Inc. 24
Business Dual Prime Rate & Federal Discount Rate 2004 On 12/31 Of That Year Source: Federal Reserve Bank of St. Louis, http: //research. stlouisfed. org Copyright 2005 Prentice- Hall, Inc. 25
Business Interstate Banking (1995) • Bank Holding Companies Can Acquire Subsidiaries In Any State • No Company Can Control More Than 10% Of Insured’s Deposits • No Bank Can Control More Than 30% Of State’s Deposits • Banks Can Provide Transactions For Affiliates • Banks Can Convert Affiliates To Branches (1997) Copyright 2005 Prentice- Hall, Inc. 26
Business Electronic Technology • Debit Cards/Point-Of-Sale Terminals • Smart Card • E-Cash Copyright 2005 Prentice- Hall, Inc. 27
Business International Banking • Government Influences Exchange Rates • International Payments • International Banking Structure – World Bank – International Monetary Fund Copyright 2005 Prentice- Hall, Inc. 28
Business International Payments Process Copyright 2005 Prentice- Hall, Inc. 29
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