What is Money?

Money Money is more interesting than you think. It serves different functions, comes in several different forms, and has value for reasons that are not immediately obvious.

Three Functions of Money 1.It serves as a medium of exchange - We can trade money for goods and services 2.It serves as a store of value - We can hold our wealth in the form of money until we are ready to use it 3.It serves as a measure of value - Money is like a measuring stick that can be used to assign value to a good or service (when we say something costs $10, we know exactly what that means)

Types of Money Anything that people are willing to accept and exchange for goods and services can serve as money. Ex: Salt, animal hides, gems, and tobacco Each of these items has certain characteristics that make it better or worse than others for the use of money.

The most familiar types of money is coins and currency. Coins are metallic forms of money such as pennies, nickels, and dimes Currency is both coins and paper money There are other forms of money as well. Checking Accounts Savings Accounts

Why Money Has Value? We value and accept money for a simple reason- we are absolutely sure that someone else will accept its value as well. Money by itself has no other value. A $10 bill only costs a few cents to make and has no alternative use. This even hold true with coins, checking, and savings accounts They have value only because we accept that they have value

Account Balance Activity Continue working on you balancing activity. If you have completed your activity, you can finish your current events.

The Financial System People and businesses with money to save take it to financial institutions. The institutions do not simply put it in a safe and leave it there. Instead, they put the money to work by lending it to other people of businesses that need funds. The financial institutions covers its cost, and makes a profit, from the interest (fees) it charges for those loans.

Types of Financial Institutions Commercial Banks Offer full banking services to individuals and businesses. They are the most important part to our financial system because of their large areas of influence. Most people have their checking and savings accounts in commercial banks

Savings and Loan Associations (S&L’s) Financial Institutions that traditionally loaned money to people buying homes. They also take deposits and issue savings accounts in return. Today, S&L’s perform many activities that commercial banks do.

Credit Unions They work on a not-for-profit basis. They are often sponsored by large businesses, labor unions, or governments institutions. They are open only to members of the group that sponsors them. Credit unions gives these workers a financial institution that has a low cost.

Although they have differences, each performs a similar function. They bring savers and borrowers together. The give people a safe place to deposit their money when they want to save it and a source for borrowing when they need a loan.

Keeping Our Financial System Safe The US has one of the safest financial systems in the world. The high degree of safety results from two factors Regulation Insurance

Regulation The financial institutions in the US are closely regulated. Banking is one of the most regulated industries in the country. They have to report to more than one regulatory agencies on a regular basis and are required to follow rules and accounting practices that minimize unnecessary risk.

Insurance Despite the best efforts to regulate institutions, some institutions will fail. When this happens, the Federal Deposit Insurance Corporation (FDIC), will be there to help. The FDIC, started in 1934, will insure deposits up to $250,000. If a person has $100,000 in deposits at a bank and it fails, the FDIC will send that person a $100,000 check