1. Money and Banking Functions of Money
1. Medium of Exchange= an item that sellers accept as payment.
2. Unit of Account= a way to measure the value of goods by comparing their prices.
3. Store of Value= it can be saved, or stored for later use.

2. Characteristics of Money
1. Durability- strong material
2. Portability-easy to carry
3. Divisibility- easy to break up
4. Uniformity- common
5. Limited Supply- Security Features
6. Acceptability- People want to use it

3. Sources of Money’s Value
Commodity money: An item used as money that also has value of its own (like gold or tobacco ).
Representative money: An item that can be exchanged for something else. (A sheet of paper that can be redeemed for currency.)
Fiat money: this money has value because a government “fiat”, or decree states that it has value (like currency= coins and paper bills).

4. Services Banks Provide
Storing Money
Saving Money
Loans
Mortgages
Credit Cards

5. Interest- Simple or Compound???
Simple- Interest paid only on principle.
Ex. Borrowing or Saving $100 at 5% a year for 3 years. You would owe or earn $5 every year. Total interest paid would be $15.
Compound Interest- Interest paid on principle and accumulated interest.

6. Compound Interest Example
5 % APR
Principle
Interest
Principle at the end of year
Year 1
$100
$5.00
$105.00
Year 2
$105
$5.25
$110.25
Year 3
$5.51
$115.76
Year 4
$5.79
$121.55
Year 5
$6.08
$127.63