© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Eighteen Understanding Money, Banking, and Credit 18 | 1 PRIDE HUGHES KAPOOR INTRODUCTION TO BUSINESS ELEVENTH EDITION

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives 1. Identify the functions and characteristics of money 2. Summarize how the Federal Reserve System regulates the money supply in order to maintain a healthy economy 3. Describe the organizations involved in the banking industry 4. Identify the services provided by financial institutions 5. Understand how financial institutions are changing to meet the needs of domestic and international customers 6. Explain how deposit insurance protects customers 7. Discuss the importance of credit and credit management 18 | 2

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Great Recession  Be prepared to discuss the Great Recession, the most recent severe global economic recession How severe was it? What triggered the wave in foreclosures? Why did so many people and businesses have to file for bankruptcy? Why is borrowing money more difficult in a recession? 18 | 3

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Is Money?  Define Barter System Money Consumer Price Index Purchasing Power  Know the Functions of Money Medium of Exchange Measure of Value Store of Value 18 | 4

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Characteristics of Money  Know the key Characteristics of Money Divisibility Portability Stability Durability Difficulty of Counterfeiting 18 | 5

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Supply of Money: M1 and M2  Define Demand Deposit Time Deposit  What are the two Main Measures of the Supply of Money? Be able to contrast them M1 M2 18 | 6

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Federal Reserve System  Be prepared to explain what The Federal Reserve System is and what it does  What was the Fed’s response to the most recent economic crisis?  How does the Fed regulate Reserve Requirements and make more or less required reserves?  How does the Fed regulate the Discount Rate? Why is it important to regulate the discount rate?  What is involved in the Fed’s Open Market Operations?  What other responsibilities does the Fed have? 18 | 7

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The American Banking Industry  Define Commercial Bank -National Bank -State Bank Savings and Loan Associations (S&Ls) Credit Unions Mutual Savings Banks Insurance Companies Pension Funds Brokerage Firms Finance Companies Investment Banking Firms 18 | 8

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Careers in Banking  Know the traits of successful bankers Honesty Ability to interact with people Strong background in accounting Appreciation for the banking-finance relationship Basic computer skills 18 | 9

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Services Provided by Financial Institutions  Be familiar with Traditional Services Provided by Financial Institutions Checking Accounts -Check -NOW Accounts Savings Accounts -Passbook Savings Account -Certificate of Deposit (CD) Short- and Long-Term Loans -Line of Credit -Revolving Credit Agreement -Collateral Credit-Card versus Debit Card Transactions  What are some Electronic Services and International Services provided by financial institutions? 18 | 10

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Changes to the Banking Industry  Be prepared to discuss Anticipated Changes in the Banking Industry What global events and trends have changed and are changing the banking industry? -Globalization -Economic Cycle -Technology -Consumer Demands -Regulatory Issues 18 | 11

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Online and International Banking  Know the advantages and disadvantages of Online Banking  Define Electronic Funds Transfer (EFT) System How has this system changed how banks do business? -Automated Teller Machines (ATMs) -Automated Clearinghouses (ACHs) -Point-of-Sale (POS) Terminals -Electronic Check Conversion (ECC)  Know the popular methods of paying for Import and Export Transactions Letter of Credit Banker’s Acceptance Currency Exchange 18 | 12

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The FDIC and NCUA  Define and give a brief history and overview of Federal Deposit Insurance Corporation (FDIC) National Credit Union Association (NCUA)  How much is each FDIC or NCUA account insured to? 18 | 13

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Effective Credit Management  Define Credit Borrower Lender  Be prepared to discuss how Individuals and Businesses can get money/loans from a bank after a credit crisis  Know the Five Cs of Credit Management Character Capacity Capital Collateral Conditions 18 | 14

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Checking Credit Information  Know some reliable Credit Information Sources regarding Businesses and Individuals  Be prepared to explain the Fair Credit Reporting Act  What is the Credit Card Act of 2009?  How are the Fair Credit Reporting Act and the Credit Card Act of 2009 different? What are they designed to do? 18 | 15

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sound Collection Procedures  Be prepared to discuss Sound Collection Procedures  What are effective Collection Techniques? 18 | 16