Money and Financial
Institutions
CHAPTER 12
POST-IT NOTE #1: Write the
name of something you
purchased in the last week and
who purchased the item for you.
POST-IT NOTE #2: If the money
did not exist, how would you pay
for these items?
Money and Banking
CHAPTER 12.1
The Purpose of Money
•  Enables people and businesses to buy and sell
goods/services.
•  A standard of value and a means of exchange or
payment
3 Functions of Money
•  Medium of Exchange
•  Standard of Value
•  Store of Value
•  Pages 197-198
The Functions of Banks
•  Storing Money
•  Transferring Money
•  Lending Money
Storing Money
•  Bank Account
•  Deposit
•  Withdrawal
•  Interest
Transferring Money
•  Electronic Funds Transfer
•  Direct Deposit
Lending Money
•  Primary way that banks generate a profit.
•  Collateral
•  Figure 12.1 – Draw in notes
Other Financial Services
•  Safe-deposit box
•  Credit cards
•  Money management
Types of Financial
Institutions
CHAPTER 12.2
Financial Institutions
•  Operate on state, national, and international
levels.
•  Strict rules to start
•  Charter needed
•  In the US – 3 main types of banks
Types of Financial Institutions
Commercial Banks
Savings and Loans
Credit Union
Mortgage Company
Finance Company
Insurance Company
Brokerage
Commercial Banks
•  Majority of banks
•  Wide range of financial services
•  ‘Full-Service’ banks
•  Serve individuals and businesses
•  Charge interest
Savings and Loan
•  Hold money in high interest accounts
•  Originally for mortgage loans
•  Purpose – encourage people to start saving for
home or business
•  1982, allowed to charge more interest
•  Late 1980s, majority failed
•  Now, very similar to commercial banks.
Credit Unions
•  Not-for-profit banks
•  Set up by customers for use
•  Credit cards, checking accounts, low
interest loans, high interest savings.
•  Many also pay interest on checking
Mortgage
•  Other financial institutions
•  Offered at other banks as well
•  Provides loans for buying a home
Finance Companies
•  Other financial institution
•  Offer short-term loans to businesses and
consumers
Insurance Companies
•  Other financial institutions
•  Provide protection
•  Fire, theft, etc.
•  Offers loans to businesses and consumers
Brokerage Firms
•  Other financial institution
•  Sells stocks and other investment tools
•  Financial Advising
The Federal Reserve System
•  Est 1913
•  Mission – to provide the US with safe, flexible, stable
financial system
•  Monitors the money supply
•  The central bank of the US, “The Fed”
•  Contains 12 regional banks (pg 204), 25 bank branches, and
about 5,000 member banks
•  Board of Governors
6 Functions of “The Fed”
•  Clearing Checks
•  Acting as the Federal Government’s Fiscal Agent
•  Supervising Member Banks
•  Regulating the Money Supply
•  Setting Reserve Requirements
•  Supplying Paper currency