CHAPTER 14
Money and
Banking
CHAPTER 14
SECTION 1
The Functions
and
Characteristics
of Money
THE FUNCTIONS OF MONEY
Medium of Exchange
 Something a seller will accept in exchange for a product
or service.
 Without money, people would have to barter, a much
more complicated process involving a double coincidence
of wants.
Unit of Accounting
 It is used to measure and compare the values of
different items and services.
 Helps to keep accurate financial records
THE FUNCTIONS OF MONEY
Store of Value
It is used as a store of value—sell one
thing (such as labor) and save its value
(paycheck) for use at a later time.
CHARACTERISTICS OF MONEY
Any item that wants to be money must meet six criteria:
1. Durable—withstands wear and tear of being passed
around
2. Portable—must be easy to transport
3. Divisible—must be able to divide it into small parts in
order to purchase things of differing value
4. Must have stable value
5. Must be a scarce item so that there is not too much of
it.
6. Must be accepted by the sellers and buyers in
community
TYPES OF MONEY
Commodity Money: a medium of exchange such as
cattle or gems that has value as a commodity or
good aside from its value as money
Cattle are used for food; gems are used for
jewelry.
Representative Money: money that is backed by an
item of value such as by gold or silver
The amount of money in circulation would be
limited because it is linked to some scarce good,
such as gold.
TYPES OF MONEY
Fiat Money: money that has value because a
government fiat, or order, has established it as
acceptable for payment of debts
Today, all US money is fiat money and is declared
legal tender.
Legal Tender: money that by law must be
accepted for payment of public and private
debts
seller accepting money for a service reflects the use of money as
_____.
A)
a medium of exchange
B)
barter
C)
a unit of accounting
D)
a store of value
seller accepting money for a service reflects the use of money as
_____.
A)
a medium of exchange
B)
barter
C)
a unit of accounting
D)
a store of value
By using money prices as a factor in comparing goods, money is
functioning as _____.
A)
barter
B)
a store of value
C)
a medium of exchange
D)
a unit of accounting
By using money prices as a factor in comparing goods, money is
functioning as _____.
A)
barter
B)
a store of value
C)
a medium of exchange
D)
a unit of accounting
Which of the following is defined as the exchange of goods and
services for other goods and services?
A)
Money
B)
Medium of exchange
C)
Barter
D)
Commodity money
Which of the following is defined as the exchange of goods and
services for other goods and services?
A)
Money
B)
Medium of exchange
C)
Barter
D)
Commodity money
CHAPTER 14
SECTION 2
History of
American
Money and
Banking
HISTORY OF AMERICAN BANKING
England forbade Colonial America from
using printed money or minted coins.
Bartering of various goods was used in
place of money.
When the war came, the Continental
Congress issued bills of credit (Continentals)
to pay war debts.
HISTORY OF AMERICAN BANKING
Too many Continentals were issued
and they became worthless.
After the war, the United States began
to mint its own coins backed by gold
and silver.
BANKING SERVICES
1. Checking accounts
2. Automatic deposit and payment
3. Storage of valuables
4. Money transfers
Overdraft checking, which allows a customer to
write a check for money that is in the account and
the bank will loan the money to be paid back at
a high interest rate.
ELECTRONIC BANKING
Computers ushered in a new form of banking—electronic fund
transfers (EFT)
Automated teller machines (ATMs)
Lack of privacy and possibility of tampering are risks of electronic
bank transfers.
ELECTRONIC BANKING
Customer has little “float” time between writing the check and its
being cashed by the bank.
Electronic Funds Transfer Act helped calm some of these concerns.
Who has the power to mint coins?
A)
the President
B)
the Bureau of Engraving and Printing
C)
State legislatures
D)
Congress
Who has the power to mint coins?
A)
the President
B)
the Bureau of Engraving and Printing
C)
State legislatures
D)
Congress
Electronic funds transfer was made possible by ______.
A)
the savings and loan industry
B)
Federal Reserve notes
C)
overdraft checking
D)
the use of the computer
Electronic funds transfer was made possible by ______.
A)
the savings and loan industry
B)
Federal Reserve notes
C)
overdraft checking
D)
the use of the computer
Your ATM card was stolen and the thief spent $500 of your money.
You notified your bank within a few hours of the theft. Based on this
information, which of the following statements is CORRECT?
you.
A)
The bank will replace the $500.
B)
You will lose the $500.
C)
You most you will lose is $50.
D)
You will only get the money back if the thief repays
Your ATM card was stolen and the thief spent $500 of your money.
You notified your bank within a few hours of the theft. Based on this
information, which of the following statements is CORRECT?
you.
A)
The bank will replace the $500.
B)
You will lose the $500.
C)
You most you will lose is $50.
D)
You will only get the money back if the thief repays
Which of the following is an advantage of using electronic funds
transfers?
A)
privacy
B)
saving time
C)
security
D)
lack of service charges
Which of the following is an advantage of using electronic funds
transfers?
A)
privacy
B)
saving time
C)
security
D)
lack of service charges
CHAPTER 14
SECTION 3
Types of
Money in the
United States
MONEY AND NEAR MONEYS
Currency
 Coins and bills (notes)
 Federal Reserve Notes and United States Notes are legal tender.
Credit Cards and Debit Cards
 Credit cards are not really money; they are representative of future claims to funds.
 Credit cards actually defer the completion of the transaction to a later date.
 Debit cards are similar to checks, but the withdrawal is done electronically.
MONEY AND NEAR MONEYS
Checks
 Checks and checking accounts offer checkable deposits.
 Today all thrift institutions offer checkable deposits.
 Checking Account: account in which deposited money can be withdrawn at any time
by writing a check
 Checkable Deposits: money deposited in a bank that can be withdrawn at any time by
presenting a check.
 Thrift Institutions: mutual savings banks, S&Ls, and credit unions that offer many of the
same services as commercial banks
MONEY AND NEAR MONEYS
Near Moneys
 Near Moneys: assets, such as savings accounts, that can be turned into money
relatively easily and without the risk of loss of value
 Near moneys are assets that have values stated in terms of money, but are not
themselves money.
 Near money can easily be turned into money, such as savings accounts or time
deposits.
THE MONEY SUPPLY
Definition M1 includes:
 all currency,
 all deposits in checking accounts,
 and travelers’ checks.
THE MONEY SUPPLY
Definition M2 includes:
 all of M1 plus savings deposits,
 Time deposits,
 small denomination CD’s,
 money market deposit accounts,
 money market mutual fund balances,
 And other specialized account balances.
Which of the following describes a debit card?
account
A)
Type of loan
B)
Defers transactions that involve the use of money
C)
Involves paying interest if a balance is not paid off
D)
Automatically withdraws money from a checkable
Which of the following describes a debit card?
account
A)
Type of loan
B)
Defers transactions that involve the use of money
C)
Involves paying interest if a balance is not paid off
D)
Automatically withdraws money from a checkable
Assets that can be turned into money relatively easily are called
_____.
A)
checking accounts
B)
thrift institutions
C)
debit cards
D)
near moneys
Assets that can be turned into money relatively easily are called
_____.
A)
checking accounts
B)
thrift institutions
C)
debit cards
D)
near moneys
Which of the following choices is a credit device used to make
cashless purchases?
A)
Checking account
B)
Thrift institutions
C)
Debit card
D)
Near moneys
Which of the following choices is a credit device used to make
cashless purchases?
A)
Checking account
B)
Thrift institutions
C)
Debit card
D)
Near moneys