Today’s Schedule – 11/28 PPT: Money Supply & Banking Rdg: Pitfalls of Credit Card Debt Bonus Quiz: Money HW: Read 17.2/17.3 Start Studying for Unit 5 Test - FRIDAY

Supply of Money Money Supply: All money available in the U.S. economy – Divided into two (2) categories: M1 and M2

M1 Assets that are liquid – Can easily be used as/converted to cash Money held outside of bank vaults – In circulation Checking accounts Traveler’s checks

M2 Funds that cannot be used directly as cash – Can be converted as cash fairly easily Deposits in savings accounts

Functions of Financial Institutions 1.Store Money Store money in vaults Insured by government against theft 2.Saving Money Banks offer: savings accounts, checking accounts, money market accounts, certificates of deposits (CDs)

Savings/Checking Accounts For people who need to make frequent withdraws Small annual interest rates

Money Market Accounts Fund that pools money from small savers to purchase short term government and corporate securities Can only write a limited number of checks per year typically under a certain amount of money Interest rates fluctuate

CDs Guaranteed interest rate over a specific amount of time Funds cannot be withdrawn until set time is up – If you do there is a penalty

Functions of Financial Institutions 3.Loans -Banks lend money in order to make interest = profits for banks -When someone defaults on their loan, banks lose money

Functions of Financial Institutions 4.Mortgages Loan to purchase real estate Repaid over years 5.Credit Cards Card issuer immediately pays for good Card holder repays “loan” monthly -Accrue interest if not paid monthly

Interest Principal: amount of money borrowed Interest: amount paid on borrowed money Compound Interest: Interest paid on both principal and accumulated interest

Types of Financial Institutions 1.Commercial Banks Typically provide services to businesses 2.Savings and Loan Associations Originally just for housing loans Now very similar to commercial banks 3.Savings Banks Smaller transactions than commercial banks

Types of Financial Institutions 4.Credit Unions Cooperative lending Usually for a particular group of people Higher interest rates 5. Finance Companies Installment loans to customers One time, high cost purchases like a car High interest rates

Electronic Banking ATMs: computers used to deposit money, withdraw cash, transfer funds and obtain account info Debit Cards: Used to withdraw money – Used like a credit card Home Banking: Online banking Stored Value Cards: Phone/copying/ dining cards with set amount of money