Money and Banking

money, history of banking, and banking today!

money is the current medium of exchange

money can: be used for exchange
be a unit of account
store value of wealth

6 characteristics of $$$

Limited Supply

Value of Money-- where does it come from?

-From objects that have value (cattle, salt, precious stones) known as Commodity $
-Something with no value that can be exchanged for something with value (IOU) which is known as Representative $
-An order or decree (legal tender) known as Fiat $

The US uses fiat money to back up the dollar


the First Bank of the United States was created in 1791

The Revolutionary war left the United States in debt and we needed a unified currency to help some of the states recover and the First Bank was created

Soon after in 1811 the First Bank lost chartering and the Second Bank was created. When president Andrew Jackson was asked to recharter the Second Bank in 1832 he vetoed it and it lost all federal funding

the federal reserve

This is the central bank of the United States, created by the Congress to provide the nation with a safer, more flexible, and more stable system

Today the reserve does 4 things:
-influence money and credit conditions to keep stability
-supervises and regulates banks
-maintains and stabilizes the financial system
-provides financial services to the US government

Federal Deposit Insurance Corporation (FDIC)

The FDIC was created in 1933 in response to the thousands of bank failures that occurred in the US during the Great Depression

This program insures bank deposits in eligible banks against loss in case of a bank failure and regulates banking practices

banking today

how to measure $ supply

economists take into account everything under M3 which includes coins and currency in circulation(m1), small savings accounts and money market funds(m2), and large time deposits and large money market funds(m3)

The US current supply is 4,028,362

Banking services

1. Accepting deposits
2. Granting loans
3. Providing safe deposit lockers & vaults
4. Sell Insurance Products
5. Sell Investment products like Mutual funds

How do banks make money??

Banks add interest to loans you take out or invest some of the money people deposited

Types of financial institutions

Commercial banks: Regular banks that protect deposits and hand out loans

Investment banks: Does a varity of services for businesses and the government

Insurance companies: helps individuals and companies preserve themselves and wealth

Brokerages: acts as a buffer between buyers and sellers to facilitate transactions

Investment companies: trust through which individuals diversify their investments

Effects of online banking

24 hour access!!

Increases criminal activity /:

Allows expansion past simple banking services