Chapter 14

Understanding
Money and
Banking

PowerPoint Presentation by Charlie Cook

Copyright © 2005 Prentice Hall, Inc.
All rights reserved.
 Key Topics
• Money and its forms in the U.S.
• U.S. financial institutions
• How banks create money and how they are
regulated
• The Federal Reserve system
• Changes in the financial industry
• International banking and finance

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 What Is Money?
• Portability
• Divisibility
• Durability
• Stability

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 The Functions of Money

Medium
Medium of
of Exchange
Exchange

Store
Store of
of Value
Value

Unit
Unit of
of Account
Account

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 The Money Supply
• M1: Spendable
 Currency
 Demand deposits

• M2: Spendable plus Convertible

 Time deposits
 Money market mutual funds
 Savings deposit

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 Credit Cards: A Major Financial Force
• Credit cards accounted for almost half of all
transactions for the year 2000
• Credit cards are a large and growing business

Convenient
Convenient for
for
users
users
Highly
Highly
profitable
profitable for
for
issuers
issuers

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 U.S. Financial Institutions
• Commercial Banks
Diversification and mergers
Commercial interest rates

• Savings and Loan

Associations
• Mutual Savings Banks

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 U.S. Financial Institutions
• Credit Unions
• Non-Deposit Institutions
 Pension funds
 Insurance companies
 Finance companies
 Securities investment dealers

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 Special Financial Services
• Individual Retirement • Financial advice and
Accounts (IRAS) brokerage services
• Trust Services • Automated teller
machines
• International Services
 Currency exchange • Electronic funds
transfer
 Letters of credit
 Banker’s acceptance

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 The Federal Reserve System
• Structure • Functions
 Board of governors  Banking for the
government
 Reserve banks
 Banking for banks
 Member banks
 Controlling the
money supply

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 Controlling the Money Supply: The
Tools of the Fed
• Reserve requirements
• Discount rate controls
• Open market operations
• Selective credit controls

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 The Changing Money and Banking
System

Interstate Banking
Deregulation

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 Electronic Technologies: A Dramatic
Change

Debit
DebitCards
Cards

Smart
SmartCards
Cards

E-cash
E-cash

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 Bolstering International Trade
• World Bank
 Provides a limited scope of financial services

• International Monetary Fund (IMF)

 Stable exchange rates
 Temporary short-term loans
 Cooperation on global monetary issues
 International payments system

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 Chapter Review
• Define money and its forms in the U.S.
• Describe U.S. financial institutions.
• Explain how banks create money and how they are
regulated.
• Discuss the functions and tools of the Federal
Reserve system.
• Identify how the financial industry is changing.
• Understand international banking and finance.

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 14–15