Name:__________________________________
FINANCE
CHAPTER 1- The Business of Banking
1.1 “INTRODUCTION TO BANKING”
DEFINITIONS:
Medium of exchange- System for measuring value of goods and services
BANKS are Financial intermediary- an intermediary is a “go between” two parties, a broker.
Financial intermediaries facilitate the flow money throughout our economy.
Banks: Safeguard (Hold/Protect), Transfer, Exchange, or Lends money
3 Types of Banks & Define each:
1. Commercial- Banks designed for business/commercial clients.
2. Retail- Banks designed for the individual, family, or business clients.
3. Central- government banks- Federal Reserve Banks (12 of them across the US including
Dallas)
Mergers- Businesses (Banks) that purchase other Businesses (Banks)
1.2 “Role of Banks in the Economy”
DEFINITIONS:
List the 5 ways banks safeguard your money:
1. Record keeping
2. Identification
3. Enforcement
4. Transfer
5. Sound Business Practices
Spreading the Wealth
List and Define the 5 Roles that banks play in the financial environment
1. Transferring- banks borrow and send money to other banks, businesses, and consumers
2. Lending- loaning money for a fee, “interest”
3. Creditworthiness- evaluate risk “Risk Management”
4. Guaranteeing the Money- security and confidence
5. Substance of Society- vital to the economy as the financial foundation
THINK CRITICALLY CH. 1 (PG. 9)-USE BOOK TO ANSWER THE QUESTIONSSOME INFORMATION MAY NEED TO BE RESEARCHED ONLINE
1. In what ways is a bank like any other business? In what ways is it different from other
businesses?
2. Name three ways you could interact with a bank. For each, explain how technology has
changed the interaction between the bank and the customer.
3. Why do governments regulate banks?
4. BANKING MATH- INTERNET REARCH -FOREIGN EXCHANGE RATES
SUGGESTION: Google “Foreign exchange rate converter” OANDA is one web site
http://www.oanda.com/currency/converter/
In international banking, exchange rates are used to compute the value of currencies between
different countries. Use the current exchange rates to compute the following values for $10,000
US dollars.
Record Rate
Record Money in Foreign Currency
$10,000 $US x Exchange rate of _____________ = ____________ Canadian dollars
$10,000 $US x Exchange rate of______________ = _____________ Mexican pesos
$10,000 $US x Exchange rate of______________ = _____________ Japanese yen
$10,000 $US x Exchange rate of______________ = _____________ Euro
THINK CRITICALLY CH. 1.2 (PG. 16)
1. How do banks contribute to the stability of the society at large while safeguarding the funds
of their own customers?
2. Governments don’t routinely examine the books of many businesses. Poor business practices
just put them out of businesses. Why should banks be treated any differently?
3. In what ways have security issues for banks changed in the last 30 years?
4. Make a list of 5 bank services that are important to you and rank them in order of
importance (in your opinion), and why they are so important to you.
1.
2.
3.
4.
5.
INTERNET RESEARCH
LOOK ONLINE FOR THE ANSWERS TO THE FOLLOWING QUESTIONS:
MOST INFORMATION CAN BE FOUND BY DOING A GOOGLE SEARCH.
DEFINE: COMMERCIAL BANK-
GIVE ME 2 EXAMPLES
DEFINE: RETAIL BANK-
GIVE ME 2 EXAMPLES
WHAT IS THE DIFFERENCE BETWEEN A RETAIL BANK AND A COMMERCIAL BANK?
DEFINITION OF INTERMEDIARY-
THE PHRASE MERGERS AND ACQUISITIONS (ABBREVIATED M&A) MEANS WHAT?
1.3 “How the Banking System Works”
DEFINITIONS:
Depositors- People that put their money into banks
Spread- The difference between what a bank pays in interest (from deposits) and what it
receives in interest (loans). NET INTEREST INCOME
Profit- Revenue minus Expenses (money left over after all bills are paid from revenue)
Assets- anything of value (money or anything that can be converted to money)
Liquid Asset- cash or anything that can be easily converted to cash
Liabilities- a financial obligation (what you owe)
Niche Markets- targeting particular customers in defined locations or by particular services
Deregulation- the loosening of government control and regulations (1999)
(reversing the Glass Stegal Act of 1933 which regulated banks)
BANKING MATH- If you had $10,000 in an account that earned 3% interest compounded
annually (paid once a year), how much money would you have at the end of
1year= $10,000 x .03 x 1= $10,300
FORMULA FOR CALCULATING INTEREST
Principle x Rate x Time (PRT)
2 year= $10,300 x .03 x 1= $10, 609
Compounding interest= Earning interest on interest that has been previously paid
1.4 “OTHER FINANCIAL INTSTITUTIONS”
DEFINITIONS:
Depository intermediaries- a business that obtains funds from the public and uses that to finance
their business.
List 4 Depository intermediaries and define each:
1. Commercial banks- business banks, also called “wholesale banks”
2. Savings and Loans- focuses on “real estate loans”, big banks of the 80s
3. Mutual Savings Banks- focuses on individual customers not businesses
4. Credit Unions- non-profit banks that can only be used by members (members belong to a
group or employed by a large business)
Non-depository intermediaries- does not take deposits, but earns money by providing a financial
service.
List 5 NON Depository intermediaries and define each:
1. Insurance Companies- provides financial protection for a fee (asset security, risk
management through actuary- statistical risk factors)
*EXAMPLE- State Farm
2. Trust Companies/ Pension Funds- Money management companies (retirement or trust
funds)- regulates future payments for their customers
*EXAMPLE- Equity Management Group
3. Brokerage Houses- Trades stocks, bonds, mutual funds, etc. for a fee (stock broker firms)
*EXAMPLE- E Trade
4. Loan Companies- Private companies that provide loans for a fee
*EXAMPLE- Real Estate loan companies
5. Currency Exchange- convert foreign currencies for a fee
*EXAMPLE- American Express Exchange
THINK CRITICALLY CH. 1.4 pg 29
1. Services from depository institutions have become similar since deregulation. Why is there
any need for different forms of depository institutions?
2. What is a major advantage of credit unions?
INTERNET RESEARCH
LOOK ONLINE FOR THE ANSWERS TO THE FOLLOWING QUESTIONS:
MOST INFORMATION CAN BE FOUND BY DOING A GOOGLE SEARCH.
LOOK UP 3 COMMERCIAL OR RETAIL BANKS THAT HAVE BRANCHES IN ALLEN.
LOOK ON THEIR WEBSITE & RECORD SOME INFORMATION ON THEM.
Bank #1 _______________________________
1. What is their website:_______________________________________
Just on the front page of their website, list 5 different types of products that they offer?
Based on the information you see on their website, would you consider banking
with them, why or why not?
Bank #2 _______________________________
1. What is their website:_______________________________________
Just on the front page of their website, list 5 types of different products that they offer?
Based on the information you see on their website, would you consider banking
with them, why or why not?
Bank #3 _______________________________
1. What is their website:_______________________________________
Just on the front page of their website, list 5 different products that they offer?
Based on the information you see on their website, would you consider banking
with them, why or why not?
FINANCIAL MARKETS RESEARCH
DEFINE THE DOW JONES INDUSTRIAL AVERAGE (DJIA)-
NAME AT LEAST 3 COMPANIES IN IT:
WHAT PRICE IS IT TRADING AT TODAY?_________UP OR DOWN-HOW MANY POINTS_______
WHAT WAS THE PRICE AT 30 DAYS AGO?
WHAT WAS THE PRICE ONE YEAR AGO?
WHAT IS THE S & P 500?
WHAT IS THE PRICE OF A BARREL OF OIL AT TODAY?
IS THIS UP OR DOWN AND BY HOW MUCH $
WHAT LARGE COMPANIES HAVE FILED FOR BANKRUPTCY IS THE LAST YEAR?
WHAT IS THE NATIONAL AVERAGE PRICE IN THE US FOR AGALLON OF GAS?
WHAT WAS THE PRICE ONE YEAR AGO?
IF GAS PRICES BEGIN TO DECREASE, HOW DOES THIS HELP OUT THE ECONOMY?
WHAT IS THE NATIONAL AVERAGE INTEREST RATE FOR A 30 YEAR MORTGAGE
(HOME LOAN)
IS THIS UP OR DOWN FOR THE YEAR?
IF THE INTEREST RATES WERE TO DECREASE DOES THIS TYPICALLY HELP OR HURT
THE ECONOMY?
COMPANY NAME
SYMBOL
STOCK QUOTES
QUOTE(PRICE)
APPLE
_________
_________
__________________________
MICROSOFT
_________
_________
__________________________
WAL-MART
_________
_________
__________________________
UP OR DOWN FOR THE DAY (CHANGE)