UNIT IV
Caution: This PPT will not replace
reviewing the textbook. Both need to be
studied in preparation for the test.
CHAPTERS 10-11:
MONEY, BANKING, AND FINANCE
PAGE 30 – WHAT IS
MONEY?
Directions: Define each of
the following terms. Use
pages 288-290.
Functions of Money
1.
Medium of Exchange - A means through which products can be exchanged
2.
Store of Value - Holds value over time; can be saved for later use
3.
Unit of Account - Serves as standard by which economic value can be measured
or Standard of Value
Characteristics of Money
4.
Divisible - Change can be made; $1 = 4 quarters or 10 dimes
5.
Portable - Small, light and easy to carry
6.
Acceptable - Users must agree it’s a valid medium of exchange
7.
Scarce - Limited quantity; absolutely necessary for value
8.
Durable - Sturdy enough to last through many transactions
9.
Stable - Purchasing power remains about the same over time
MATCHING ACTIVITY
At the grocery store last week, you purchased $93.25
worth of groceries. You paid for the groceries in cash.
You gave the cashier four $20 bills, a $10 bill, three $1
bills, and a quarter. What is the primary function of
money exhibited here?
Medium of Exchange
MATCHING ACTIVITY
During the American Civil War, the U.S. government
printed fractional currency notes to get around the fact
that there were not enough coins in circulation. Between
1862 and 1875, the U.S. government printed fractional
notes in dominations of 3, 5, 10, 15, 25, and 50 cents.
The fractional notes were meant to restore what primary
characteristic of good money?
Divisible
MATCHING ACTIVITY
At the grocery store last week, you had
to decide whether to buy the 14.5 oz.
can of diced tomatoes for $1.75 or the
28 oz. can of diced tomatoes for $2.55.
What is the primary function of money
exhibited here?
Unit of Account
MATCHING ACTIVITY
Last year, you sold your game system to
your friend Jimmy for $125 in cash.
You’ve been saving that money in a
shoebox under your bed. You are saving
the money to buy a new computer next
year. What is the primary function
of money exhibited here?
Store of Value
MATCHING ACTIVITY
In the 17th century, Virginia, Maryland,
and North Carolina began to use
tobacco as currency. But, since tobacco
could easily be grown in the southern
colonies, tobacco did not always
function well as money. What primary
characteristic of good money was
violated when tobacco was used as
money?
Scarce
MATCHING ACTIVITY
Inflation in Zimbabwe in 1998 was 32
percent. In August 2008, inflation was
estimated at 11,200,000 percent. Also in
2008, Zimbabwe issued a new 100 billion
dollar note. What primary characteristic of
good money was violated by the
Zimbabwean dollar during this period?
Stable
PAGE 31 – STOCKS
AND DIVIDENDS
Most pay a return
of 1% or less per
year!
If you put
$100 into
a savings
account, a
year later
you would
have
$101.
PAGE 31 – STOCKS
AND DIVIDENDS
Savings Account
• Low interest rates (0.8 and 1.5%)
• Penalty paid for too many withdraws
Checking Account
• Very low interest rates (usually less than 0.1%)
• Tied to a debit card; same as cash
• Monthly fee
Certificate of Deposit
• Higher interest rates (anywhere from 2-5%)
• Specified lengths of investment (6 months – 5 years)
• Penalty if withdrawn early
PAGE 31 – STOCKS
AND DIVIDENDS
Why Buy Stock?
• Earn more interest than you would in a savings account
or a CD (certificate of deposit).
• Dividends are a share of company profits.
• Capital gains are profits from resale of stock.
PAGE 31 – STOCKS
AND DIVIDENDS
U.S. Indexes:
• Dow Jones (DJIA)
• NASDAQ Composite
• S&P 500
Global Indexes:
• Nikkei 225 (Japan)
• FTSE 100 (UK)
• TSE 300 (Canada)
PAGE 31 – STOCKS
AND DIVIDENDS
Tracking the Dow
• Bull market - Prices rise steadily over a relatively long period
• Bear market - Prices decline steadily over a relatively long period
Stock Market Video
PAGE 32 – ANALYZING
THE STOCK MARKET
1.
Define the following:
A.
B.
C.
D.
Use your
Stocks app
(iPhone) or
download
MSN Money on
Android.
stock volume - # of shares traded per day
price-to-earnings ratio (P/E) - ratio for valuing a company
market capitalization - total market value of the shares outstanding
stock yield - annual dividends divided by the share price
2.
What’s the difference between a stock exchange and a stock index?
3.
Pick a stock and identify the following:
4.
- Stock exchange is
where stocks are
bought and sold. A
stock index is a
measurement of the
value of a section of
the stock market.
A. Open
G. Market Cap
B. High
H. 52 Week High
C. Low
I. 52 Week Low
D. Volume
J. Average Volume
E. P/E
K. Yield
F. Stock Exchange
Which three factors do you would believe would be most useful for
determining to invest? Why?
DOW JONES INDUSTRIAL AVERAGE
EXIT TICKET – (POINT BANK)
1. Which of the following companies is a better investment?
2. Explain how you came to this conclusion (use at least two
factors).
Under Armour (UA) - $88.47
Nike (NKE) – $121.96
Open
87.41
87.44
Open
121.80
Volume
(Avg.)
1.63m
Day’s
(3.18m) Range
86.4289.59
Volume
(Avg.)
1.49m
Day’s
(4.52m) Range
121.34122.93
52w
Range
63.77105.89
Market
Cap.
18.87b
52w
Range
90.69133.52
Market
Cap.
103.85b
P/E Ratio
(EPS)
90.09
(0.97)
Dividend
(Yield)
1.12
(.92%)
P/E Ratio 30.77
(EPS)
(3.96)
Total
Shares
674.74
m
Dividend
(Yield)
Total
Shares
-180.12
m
Previous
Close
Previous
Close
121.88
PAGE 33 – TYPES OF
MONEY
Directions: Use pages
291 – 293. Include a
explanation and a
picture of an example
for each.
Directions: Divide page 33 of your notebook into six sections.
Each box should contain one of the following:
•
•
•
Commodity Money $ that derives it’s value from the material it’s made
Representative Money $ that’s backed by something tangible
Fiat Money $ that gets its value from a gov’t promise
Used in United States:
•
•
•
Currency Paper money and coins
Demand Deposits Deposits that are easily converted to cash
Near Money Not quite as easily converted as demand deposits
What is Money Video
PAGE 34 – BANKING
TIMELINE
1791 - First Bank of the United States
•
•
•
issued national currency
controlled money supply
loaned money to federal
government, state banks,
businesses
1811 – End of First Bank of the U.S.
charter
•
•
•
government had difficulty
financing War of 1812
state banks again issued
currency not linked to gold,
silver reserves
increased money supply led
to inflation during the war
PAGE 34 – BANKING
TIMELINE
1816 - Second Bank of the United
States
•
•
more resources than First
Bank; made money supply
more stable
Opponents thought bank too
powerful, too close to wealthy
1832 - President Andrew Jackson
vetoed renewal of charter
•
•
Grew up in a modest farming
family in the Carolinas
Bank’s charter ends in 1836
PAGE 34 – BANKING
TIMELINE
Wildcat Banking
• All banks become state
banks;
• Each bank issued it’s
own paper currency
• States passed free
banking laws = bank
runs, instability,
panic
PAGE 34 – BANKING
TIMELINE
1863 - National Banking Act
•
•
•
created national currency
backed by U.S. Treasury bonds
required minimum amount of
capital for national banks, to
back currency
taxed state bank notes issued
after 1865, taking them out of
circulation
1900 – Gold Standard adopted
•
Dollars were = to a set amount
of gold
PAGE 34 – BANKING
TIMELINE
1913 – Federal Reserve System created
•
•
•
•
consists of 12 regional banks, one decision-making board
provides financial services to federal government and regulates money supply
makes loans to banks that serve the public
issues Federal Reserve notes as national currency
PAGE 34 – BANKING
TIMELINE
1929 – Great Depression and New
Deal
•
•
many banks failed due to bank
runs
Banking Act of 1933
• regulated interest rates
banks paid; prohibited
sale of stocks by banks
• Federal Deposit
Insurance Corporation
(FDIC) insured people’s
savings
PAGE 35 – THE
FEDERAL RESERVE
Directions:
You should be able to do the following after watching the video. Record
the questions at the top of page 35.
• Describe the structure of the Federal Reserve.
• Identify the primary goal of the Federal Reserve.
• What does the Federal Reserve do on a day-to-day
basis?
PAGE 36 – SIMPLE AND
COMPOUND INTEREST
Interest: Money paid for money borrowed
APR: Annual percentage rate; amount of interest paid over
the course of one year
Calculating simple interest: I = Prt
I - Interest
P - Principal (starting balance)
r - Rate (written as decimal)
t - Time (written in years)
PAGE 36 – SIMPLE AND
COMPOUND INTEREST
PAGE 36 – SIMPLE AND
COMPOUND INTEREST
550
154
.07
4
870 .037
80.48
2.5
*To find the account balance, simply add the principal to the interest earned.
A=I+P
PAGE 36 – SIMPLE AND
COMPOUND INTEREST
3. Michael borrowed $9,000 to purchase a 2011 Honda Civic. He will pay the
money back in 48 months with simple interest of 11%. How much money will
Michael pay back in total?
I = (9000)(.11)(4) = $3,960
A = 9000 + 3,960 = $12,960
4. Samantha was given $7,500 from her grandparents. She deposited the
money into a certificate of deposit (CD) that pays 4.7% simple annual
interest. After 10 years, what was her account balance?
I = (7500)(.047)(10) = $3,525
A = 7500 + 3525 = $11,025
PAGE 36 – SIMPLE AND
COMPOUND INTEREST
Compound Interest – interest earned on both the principal
and any interest that has been previously earned.
Compound Interest Formula: A=P(1 + r)^t
A - Account Balance
P - Principal (starting balance)
r - Rate (written as decimal)
t - Time (written in years)
PAGE 36 – SIMPLE AND
COMPOUND INTEREST
Use the compound interest formula. Don’t forget
PEMDAS!
1. Add #s in parenthesis first.
2. Multiply by exponent (use ^ or xy key).
3. Then, multiply by principal.
4. Watch the money pile up!
PAGE 36 – SIMPLE AND
COMPOUND INTEREST
6
285
319.07
.019
2
1200
1417.88
.087
PAGE 36 – SIMPLE AND
COMPOUND INTEREST
Who can live more comfortably at a retirement
age of 60? Prove it by showing your work.
A) Lacey is 18 years old and she has saved money throughout high
school. She currently has $7,800 in a savings account. She decides to
invest in the stock market. Her broker guarantees an average rate or
return of 12% compounded annually. She will cash out at age 60.
A = 7800(1 + .12)^42 = $910,440.47
Or
B) Mark waits until he is 38 to start investing because he wanted to first
buy a house and raise his kids. At 38 he places his life savings, which is
$7,800, into a stock brokerage account earning 12% interest compounded
annually. He will cash out at age 60.
A = 7800(1 + .12)^22 = $94,382.42