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2. Part Five: Understanding Financial Issues
Understanding Money And Banking
Understanding Securities And Investments
Understanding Financial And Risk Management
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3. Understanding Money & Banking
Chapter 18
Understanding Money & Banking

4. Copyright 2005 Prentice- Hall, Inc.
Chapter Outline
What Is Money?
The U.S. Financial System
The Federal Reserve System
The Changing Money & Banking System
International Banking & Finance
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5. Characteristics Of Money
Portability
Divisibility
Durability
Stability
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Functions Of Money
Medium Of Exchange
Store Of Value
Unit Of Account
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7. Copyright 2005 Prentice- Hall, Inc.
Money Supply
Spendable Money = M1
Currency
Checks
Demand Deposits
Convertible Money = M2 M1
Time Deposits
Money Market Funds
Savings Deposits
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Money-Supply Growth
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9. Copyright 2005 Prentice- Hall, Inc.
Credit Cards
Not Part Of M1 Or M2
Big Business
Convenient
Profitable For Credit Card Companies
Sources Of Profit
Cardholder = Annual Fees & Interest
Merchant = 2-5% Fee
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10. Projected Consumer Bill Payments (2005)
Total = $6.74 Trillion
Source: Wired, “The New Currency” April 2004, p. 59.
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11. Copyright 2005 Prentice- Hall, Inc.
U.S. Financial System
Issues
Diversification/Mergers
Interest Rates
Depository Institutions
Commercial Banks
Thrifts
Savings & Loans
Mutual Savings Banks
Credit Unions
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12. The Prime Interest Rate
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13. Nondepository Institutions
Pension Funds
Insurance Companies
Finance Companies
Securities Dealers
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14. Special Financial Services
Pension/Trust Services
Individual Retirement Accounts
Trust Services
International Services
Currency Exchange
Letters Of Credit
Banker’s Acceptances
Financial Advice/Brokerage Services
Automated Teller Machines
Electronic Funds Transfer
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15. Worldwide ATM Locations
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16. Commercial Banking Regulation
Federal Reserve System
Federal Deposit Insurance Corporation
Other State & Federal Agencies
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17. Copyright 2005 Prentice- Hall, Inc.
How Banks Create Money
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18. Federal Deposit Insurance Corporation
Insures Member Banks Deposits To $100,000/Account
1941 – 1980 Examined
Bank Practices
Accounts
Banks Deregulated- Depository Institutions Deregulation & Monetary Control Act Of 1980
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19. Structure Of Federal Reserve System
Board Of Governors
Reserve Banks (12)
Member Banks
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Functions Of The Fed
Government’s Bank
Banker’s Bank
Check Clearing
Controls Money Supply- Monetary Policy
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21. Check Clearing By Hand (1940s)
Source: Federal Reserve Bank of Atlanta,
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22. Copyright 2005 Prentice- Hall, Inc.
Clearing A Check
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23. Copyright 2005 Prentice- Hall, Inc.
Tools Of The Fed
Reserve Requirements
Discount Rate
Open-Market Operations
Selective Credit Controls
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24. Dual Prime Rate & Federal Discount Rate
2004
On 12/31 Of That Year
Source: Federal Reserve Bank of St. Louis,
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25. Dual Prime Rate & Federal Discount Rate
2004
On 12/31 Of That Year
Source: Federal Reserve Bank of St. Louis,
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26. Copyright 2005 Prentice- Hall, Inc.
Interstate Banking (1995)
Bank Holding Companies Can Acquire Subsidiaries In Any State
No Company Can Control More Than 10% Of Insured’s Deposits
No Bank Can Control More Than 30% Of State’s Deposits
Banks Can Provide Transactions For Affiliates
Banks Can Convert Affiliates To Branches (1997)
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27. Electronic Technology
Debit Cards/Point-Of-Sale Terminals
Smart Card
E-Cash
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28. International Banking
Government Influences Exchange Rates
International Payments
International Banking Structure
World Bank
International Monetary Fund
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29. International Payments Process
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