Understand the role of finance in business

Understand the banking system.

Classification of financial institutions Common payment services Federal Reserve System TOPICS

What is a depository financial institution? Earns money to finance their business by accepting deposits from customers. What are some types of depository financial institution? Commercial banks, which offer many different services, including savings, loans, and checking accounts. Savings and loan associations (S&Ls), which traditionally specialize in savings and home loans, but now are very similar to commercial banks. Mutual savings banks, which are owned by the depositors and specialize in savings and home loans. Credit unions, which are not-for profit, serve their members only, and are owned by their depositors. CLASSIFICATION OF FINANCIAL INSTITUTIONS

What is a non-depository financial institution? Earns money to finance their business by selling specific services such as policies, investments, and loans. What are some types of non-depository financial institution? Life insurance companies Investment companies Consumer finance companies Mortgage companies Check-cashing outlets Pawnshops CLASSIFICATION OF FINANCIAL INSTITUTIONS CONTINUED

Which characteristics of financial institutions are used for comparing them? What kinds of questions may be asked about each characteristic? Services –Does the institution offer savings, checking, loans, credit cards, safe deposit boxes, trusts, etc? Safety – Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses? Convenience – Does the institution offer the access you desire? Fees and Charges – What are the short and long-term costs of the services? Restrictions – Are there minimum balances that must be kept, or other restrictions? CLASSIFICATION OF FINANCIAL INSTITUTIONS CONTINUED

Goals on Page 422. Key Concepts on Page 427. Financial Institutions Section of the Very Important Business Terms Activity. Types of Financial Services Activity. CLASSIFICATION OF FINANCIAL INSTITUTIONS TO DO:

What are the first two steps in opening a checking account? 1.Signing a signature card is the first step 2.Endorsing a check for deposit What is an endorsement? An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else. What are the three types of endorsements? Blank Special/Full Restrictive COMMON PAYMENT SERVICES

BLANK ENDORSEMENT What is a blank endorsement? Consists of endorser’s name only Who may cash a check that has a blank endorsement? Anyone who has a check with a blank endorsement may cash it.

SPECIAL/FULL ENDORSEMENT What is a special or full endorsement? Transfers payment of a check to someone else. Why would this be used? Can be used to make payment on a debt Who is the payee on this example check? Juan Delgado is the payee on this check.

RESTRICTIVE ENDORSEMENT What is a restrictive endorsement? Limits use of the check so it can be deposited only to endorser’s account. Why would this be the safest endorsement? Safest type of endorsement, as it cannot be cashed by a thief or someone who finds the check. When should it be used? Safest endorsement to use when mailing a check for deposit or when using the ATM for deposit.

1.Ensure all information is written in the check register first, and ensure checks are written in numerical order. 2.Write the date the check is written. 3.Write the payee’s name. 4.Write in the numerical amount of the check. 5.Write in the amount of the check in words. 6.Write in the purpose of the check. 7.Sign the check. CHECK WRITING PROCEDURES

PARTS OF A CHECK 1: Date 2: Payee’s Name 3: Numerical Amount 4: Amount in Words 5: Memo/For Line 6: Drawer’s Signature 7: Drawer’s Printed Name/Address 8: Check Number 9: ABA Number 10: Name of Bank (Drawee) 11: MICR Number (Routing Number/Account Number/Check Number)

What is a bank reconciliation? A bank reconciliation is the document created to show how the two balances (your checkbook and bank statement) are brought into agreement. What is an outstanding check? Outstanding checks are checks that have not been deducted from the bank statement balance. BANK RECONCILIATION

1.Obtain the monthly bank statement. 2.Determine checks paid. 3.Find differences between the monthly bank statement and monthly check register. 4.Calculate the adjusted balance. 5.If the balances do not agree, check the steps again and recalculate. STEPS IN A BANK RECONCILIATION

Some basics about The Federal Reserve: What is the Federal Reserve System? The Federal Reserve (Fed) is a centralized banking system. Sometimes called the “banker’s bank.” Why does it exist? The Fed exists to supervise and regulate member banks and help serve the public efficiently. Who participates? All national banks are required to be members of the Fed; state banks have the option of joining. How is it organized? The Fed has 12 districts. THE FEDERAL RESERVE SYSTEM

Services provided by the Fed: Supervision of banks Participation of open market activities Acting as a clearinghouse Holding reserves Approving bank mergers Supplying paper currency Managing the discount rate THE FEDERAL RESERVE SYSTEM CONTINUED