1. Money, Banking, and Financial Institutions

2. What is Money? Money has three functions:
Medium of Exchange—Do people want this? Is it easily acceptable?
Unit of Account—Does everyone agree that this is the best way to measure value?
Store of Value—Does the “money” hold its value when it gets passed on to someone else or overtime?

3. Money Supply (Money Aggregates)
M0= Currency (paper money + coins)
M1= Currency + Checkable deposits
M2= M1+ savings deposits + money market deposit account + small time deposits + money market mutual funds (individuals only!)

4. What is all that stuff??? Checkable deposits = Checks!
Savings deposits = Anything in your savings account
MMDA (money market deposit account) =
minimum balance requirement
limit on how often you can take out money
Small time deposits =
small= less than $100,000
Time deposits = money becomes available at the time of maturity (CDs!!)
MMMF (money market mutual fund) =
Individuals own shares in a mutual fund
Mutual fund = money compiled together that is then invested by the company; each depositor then has a stake in the investment

5. Federal Reserve System
Commonly called “The Fed”
3 “Branches”
Board of Governors
12 Federal Reserve Banks
Our district (5) bank is in Richmond, VA. (There are also branches in Charlotte, NC and Baltimore, MD.)
Federal Open Market Committee (FOMC)

6. The 12 District Banks
* Puerto Rico and US Virgin Islands are part of District 2.

7. The Functions of the Fed
Issuing currency
Setting reserve requirements and holding reserves
Lending to financial institutions/ an emergency lender of last resort
Check collection
Acting as a fiscal agent
Supervises banks
Controlling the money supply!