1. Vocabulary Currency- Coins and paper bills used to purchase goods/services. Certificate of Deposit- Earns a higher interest rate than a savings/checking account but you are unable to have access to your money for a set period of time Stocks- Ownership shares of a corporation that can be bought and sold Monetary Policy- Conducted by “The Fed”, it is the increasing or decreasing of the money supply. Fed- The national bank of the United States.

2. Money and the Banking System

3. Why does money have value? We are absolutely certain that someone else will accept its value as well.  Medium of Exchange  Money can be exchanged for any good or service

4. Functions of Money Medium of Exchange Barter System PPeople had to trade goods or services they possessed for goods or services they wanted VVery inconvenient TThis caused the creation of money to use for a medium of exchange Measure of Value MMoney assigns a value to a good or service and can then be exchanged in the market place

5. Types of Money Coins: Metallic forms of money such as pennies, nickels, etc. Currency: Both (coins and paper)

6. Spending, Borrowing, and Investment Spending Money  Checking Accounts  Called Demand Deposits because your money is available “on demand”  Used by writing a check or using a debit card  Credit  Credit Cards act as a loan  The purchaser is deferring payment until a later date and must pay interest on the purchase  Certificate of Deposit (CD)  Called Time Deposits because you only have access to your money after a set amount of time  Earn a higher interest rate than a checking/savings account

7. Types of financial institutions Demand Deposit and Time Deposit Accounts are usually held at either a commercial bank, credit union or savings and loan 1. Commercial Banks - Receive deposits of money, extend credit, and provide loans - Banks make money on the interest they collect from loans - Collateral - Requirement to obtain a loan, collateral is anything of value that can be used to cover the cost of the loan if you don’t pay 2. Savings and Loans - Traditionally loaned money to people buying homes 3. Credit Unions - Open only to workers of a certain group - Can offer higher interest rates to its customers

8. Stocks, Bonds, and Mutual Funds Stocks  Shares in a company that an individual purchases giving that person part ownership  Can be very rewarding and very risky  AFLAC and ENRON Mutual Funds  Helps minimize risk  Pool money from many investors to buy a range of stocks  Lower rate of return

9. Bonds  Bought by individuals  Loans to either a company or government

10. Insurance  When you buy a stock you are accepting the risk. Insurance involves transferring risk to others  Paying money to an insurance company so if what you value is lost or damaged the insurance company will pay for it

11. Life Insurance  Provides money to one’s family if they die  Term Life Insurance  Whole Life Insurance Health/Medical Insurance  Covers health and medical expenses Liability Insurance  Provides protection from claims arising from injuries or damage to other people/property  Homeowner, auto insurance Comprehensive Liability  Covers businesses from wide range of catastrophes

12. Businesses and Investment Capital Investment  Investing profits in capital to make the company more efficient Pension Funds  Mutual funds set up by employers to allow employees to save for retirement  Employees pay into the fund and gain interest

13. Is Your Money Safe? U.S. has one of the safest financial systems in the world. FDIC- Federal Deposit Insurance Commission -I-Insures accounts of up to $100,000 -C-Created after Great Depression

14. The Federal Reserve Functions: 1. Act as the gov’t bank 2. Conducting Monetary Policy  Controlling the supply of money and the cost of borrowing money

15. Changing the Money Supply The FED does this in 3 ways: 1. Reserve Requirement 2. Discount Rate 3. Open Market Operations

16. reflection What is “medium of exchange”? Why is the Barter system inconvenient? Why is a checking account called a “demand deposit”? What does a credit card company offer? Why might someone choose to put money in a Certificate of Deposit? Summarize the differences between a Commercial Bank, Savings and Loans, and Credit Unions. Why might someone choose to invest in a Mutual Fund? What is the purpose of buying insurance? What is the purpose of the FDIC? What role does the Federal Reserve play in our economy?

17. Closing ? What are the two ways a person can make money in the stock market? Capital gain- Sell stock for more than you bought it Dividend- Receive part of corporate profits based on how much stock you hold