McGraw-Hill/Irwin
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Chapter Twenty
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Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

WHAT’S MONEY?
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What is
Money?
LG1
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• Money -Anything people generally accept as payment for goods and services.
• Barter -The direct trading of goods or services for other goods or services.
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STANDARDS for a
USEFUL FORM of MONEY
• Portability
• Divisibility
• Stability
• Durability
• Uniqueness
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What is
Money?
LG1
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20-3

The MONEY SUPPLY
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What is the
Money
Supply?
LG2
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• Money Supply -The amount of money the Federal
Reserve makes available for people. The money supply is referred to as:
M1 -Money that can be accessed quickly (coins, paper money, travelers’ checks, etc.).
M2 –
M1 + money that may take a little time to obtain (savings accounts, mutual funds, etc.).
M3 -M2 + big deposits like institutional money market funds.
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FIVE MAJOR PARTS of the
FEDERAL RESERVE SYSTEM
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Basics About the Federal
Reserve
LG2
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1. The Board of Governors
2. The Federal Open
Market Committee
3. 12 Federal Reserve
Banks
4. 3 Advisory Councils
5. The member banks of the system
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MANAGING the MONEY SUPPLY
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Basics About the Federal
Reserve
LG2
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• The Fed uses three basic tools:
1. Reserve Requirement -A percentage of commercial banks’ checking and savings accounts they must keep in the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.
2. Open-Market Operations -The buying and selling of government bonds.
3. Discount Rate -The interest rate the Fed charges for loans to member banks.
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The U.S. BANKING SYSTEM
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The U.S.
Banking
System
LG4
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• Commercial banks
• Savings and loan associations
• Credit unions
• Nonbanks
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PROTECTING
DEPOSITORS’ MONEY
• The Federal Deposit Insurance Company
(FDIC) -An independent agency of the U.S. government that insures bank deposits up to
$100,000 ($250,000 until December 2013).
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Protecting
Your Funds
LG5
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• The Savings Association Insurance Fund
(SAIF) -Insures holders of accounts in savings and loan associations.
• The National Credit Union Administration
(NCUA) -Provides up to $100,000 coverage per individual depositor per institution.
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MAKING TRANSACTIONS in
OTHER COUNTRIES
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International
Banking and
Banking Services
LG7
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• Letter of Credit -A promise by the bank to pay the seller a given amount if certain conditions are met.
• Banker’s Acceptance --
A promise the bank will pay some specified amount at a particular time.
• Money exchange allows companies to go to a bank and exchange currencies to use in a particular country (i.e. dollars for euros).
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LEADING INSTITUTIONS in
INTERNATIONAL BANKING
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International
Banking and
Banking Services
LG7
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• World Bank -Lends most of its money to lessdeveloped nations to improve their productivity and help raise standards of living and quality of life.
• International Monetary Fund (IMF) -Fosters cooperative monetary policies that stabilize the exchange of one national currency for another.
About 185 countries are a part of the IMF.
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