1. Chapter 10 Section 3

2. Vocab
Money supply-all the money available in the united states economy.
Liquidity- the ability to be used as, or directly converted to cash.
Demand deposit- the money in the checking accounts.

3. Vocab
Money market mutual fund-a fund that pools money from small savers to purchase short-term government and corporate securities.
Fractional reserve banking- a banking that keeps only a fraction of funds on hand and lend out the remainder.

4. Vocab Default- a failure to pay a loan back.
Mortgage- a specific type of loan that is used to buy real estate.
Credit card- a card entitling its holder to buy goods and services based on the holders promise to pay for these purchases.

5. Vocab Interest- the price paid for the use of borrowed money.
Principal- the amount of money borrowed.
Debit card-a card used to withdraw money.
Creditor- person or institution to whom money is owed.

6. Notes Banks perform the important service of providing loans.
The first banks started when gold smiths issued paper receipts these receipts represented gold coins that the gold smith held in safe storage for his customers.

7. Notes
In early banks, those receipts were fully backed by gold-every customer who held a receipts could be sure that the gold smith kept the equivalent amount of gold in his safe.
Soon the gold smiths realized that their customers seldom, ever asked for all their gold in one day.

8. Notes
By making loans to a bank, these banks help new businesses get started, and they help established businesses grow.
And when a business gets a loan they often create new jobs for the business and also hire workers for investing in physical capital in order to increase production.

9. Notes
Also a business that gets a loan can also help other businesses grow.
When a bank issues a loan they also charge interest on that card.
By keeping enough gold reserved to cover demand, gold smiths could run a profitable business lending deposits to borrowing and earning interest.

10. Notes
A gold smith could hand over half or even three quarters of their gold to handle customers demand.
The largest source of income for banks is the interest that they get from the customers.
Banks of course also pay out interest on customers savings and most checking accounts.

11. Notes
The amount of interest that they pay out, however is less than the amount of interest they charge on loans.
The difference in the amounts is how banks cover their costs and make a profit.

12. Notes
There are several financial institutions that operate in the united states.
These include commercial banks, saving and loan association, mutual savings banks, and credit unions.
During the 1990’s these financial institutions became more similar than dissimilar, although they still had there differences.

13. Notes
Commercial Banks, which traditionally provided services to businesses, offer a wide range of services today.
Some commercial banks are chartered by states and are regulated by state authorities and by the (FDIC).

14. Notes
About one third of all commercial banks are national banks and are part of the national reserve system.
Commercial banks also provide the most services and play the largest role in the economy of any type of bank.

15. Notes
Savings and loan association were originally chartered to lend money for building homes during the mid-1800s.
Savings and loans also were called thrifts
Over time many savings and loan associations have taken on many of the same functions as commercial banks.

16. Notes
Mutual savings banks originated in the early 1800’s to serve people who made smaller deposits and transactions than commercial banks wished to handle.
Although savings banks were traditionally concentrated in the North East and also had an had an huge influence on the nations economy.

17. Notes
Credit unions are cooperative lending associations for the particular groups, usually employees of specific firm or government agency.
Credit unions are fairly small and specialize in home mortgages and car loans, usually at interest rates favorable to members.

18. Notes Finance companies make installments loans to consumers.
These loans spread the cost of major purchases like computers, cars, refrigerators, and recreational vehicles over a number of months.

19. Notes
Banks began to use computers in the early 1970’s to keep track of transactions.
As the computer became more common in the united states, their role in banking has also increased dramatically.

20. Notes
If you use an Automated Teller Machine (ATM), you are already familiar with one of the most common types of electronic banking.
ATM’s are convenient for both banks and for customers, to find and get borrow money.

21. Notes… Money consists of currency.
It consists of travelers checks, checking account deposits, and a variety of other components. All of these components make up the united states money supply.
Economists divide the money supply into different categories.

22. More notes……
The main categories in measuring money are called m1 and m2.
M1 represents money that people can gain access to easily and immediately to pay for goods and services.
M2 consist of all the assets in m1 plus several additional assets.

23. Some more notes……
M2 funds cannot be used as cash directly but can be converted to cash fairly easily.
M2 assets are also called near money.
Deposits in money market mutual funds are also included as part of m2.

24. Some more notes………
Funds that pool money from small savers to purchase short-term government and corporate securities.
Banks are essential to the storage and management of the money supply. they also perform many functions and offer a wide range of services to consumers.

25. And more notes…..
The most basic service banks offer is to provide a safe, convenient place for people to store their money.
Banks keep cash in fireproof vaults and are insured against the loose of money in the event of a robbery.

26. And some more notes…
FDIC insurance protects people from loosing their money if the bank is unable to repay funds.
Saving accounts and checking accounts are most common types of bank accounts.
Saving accounts and most checking accounts pay a small amount of interest at an annual rate.

27. ………………… A creditor is a person or institution to whom money is owed
Stored value card , or smart cards are similar to debit cards these cards are embedded with either magnetic strips or computer chips with account balance information
Many banks, credit unions, and other financial allow people to pay their bills via internet

28. ………………
People also allow people check their account balances, transfer money and automatically deposit their paychecks via computer
Electronic payments account for about 90% of the total dollar value of all transactions
Automatic clearing houses (ACHs), located at Federal Reserve Banks and their branches, allow customers to pay bills without writing checks

29. ……………………..
An ACHs transfers funds automatically from customers’ accounts to creditors’ accounts
People usually use ACHs to pay regular monthly bills like mortgage payments, rent, utility bills, insurance and premiums
They save time, postage costs, and any worries about forgetting to make a payment

30. Notes…….
Smart cards include cards issued to college students living in dormitories to pay for cafeteria food, computer time, and photocopying
Phone cards, with which customers prepay for a specified amount of long distance calling, are also smart cards

31. Question 1
A person or institution to whom money is owed is?
creditor

32. Question 2
What’s the difference between a debit card and a credit card?
A debit card is used to withdrawal money and a credit card is used to buy things (goods and services)

33. Question 3 What is money supply?
All the money available in the united states economy

34. Question 4 What are the four ways of saving money?
1)Saving accounts 2)checking accounts 3)money market accounts 4)certificates of deposits (cds)

35. Question 5
What is FDIc?
Insurance that protects people from losing their money if the bank is unable to repay funds

36. Question 6 The price paid for the use of borrowed money is called?
interest

37. Question 7 What are the sources of a bank’s income?
Interest they receive from customers who have taken loans, pay out customers saving and most checking accounts

38. Question 8
When did people start using electronic banking?
1970

39. Question 9 What are three services that banks provide?
Home banking, automatic clearing houses, stored value cards

40. Question 10
The money in checking accounts is called?
Demand deposit