Money Banking and Financial Institutions What is Money

Money, Banking, and Financial Institutions

What is Money? • Money has three functions: – Medium of Exchange—Do people want this? Is it easily acceptable? – Unit of Account—Does everyone agree that this is the best way to measure value? – Store of Value—Does the “money” hold its value when it gets passed on to someone else or overtime?

Money Supply (Money Aggregates) • M 0= Currency (paper money + coins) • M 1= Currency + Checkable deposits • M 2= M 1+ savings deposits + money market deposit account + small time deposits + money market mutual funds (individuals only!)

What is all that stuff? ? ? • Checkable deposits = Checks! • Savings deposits = Anything in your savings account • MMDA (money market deposit account) = – minimum balance requirement – limit on how often you can take out money • Small time deposits = – small= less than $100, 000 – Time deposits = money becomes available at the time of maturity (CDs!!) • MMMF (money market mutual fund) = – Individuals own shares in a mutual fund • Mutual fund = money compiled together that is then invested by the company; each depositor then has a stake in the investment

Federal Reserve System • Commonly called “The Fed” • 3 “Branches” – Board of Governors – 12 Federal Reserve Banks • Our district (5) bank is in Richmond, VA. (There also branches in Charlotte, NC and Baltimore, MD. ) – Federal Open Market Committee (FOMC)

The 12 District Banks * Puerto Rico and US Virgin Islands are part of District 2.

The Functions of the Fed 1. Issuing currency 2. Setting reserve requirements and holding reserves 3. Lending to financial institutions/ an emergency lender of last resort 4. Check collection 5. Acting as a fiscal agent 6. Supervises banks 7. Controlling the money supply!