Money and Banking Industry

Moon Young Jang


What is Money ?




noun: money

a current medium of exchange in the form of coins and banknotes; coins and banknotes collectively.

What are the three uses of money?

  • Money as Medium of Exchange

– A medium of exchange is anything that is used to determine value during the exchange of goods and services.

  • Money as a Unit of Account

– A unit of account is a means for comparing the values of

goods and services.

  • Money as a Store of Value

– A store of value is something that keeps its value if it is

stored rather than used.

What are the six characteristics of money?

  • Generally Acceptable

- know what is acceptable to exchange for a our country its money

  • Easily Counted and Measured

- when you exchange this much of this and you get that much of that

  • Durable

- money can be destroyed depending on its value

  • Convenient

- large amounts of coins are not easily transported so we dont really use them

  • Easily Controlled

- we need a continuous supply of money silver and gold are hard to find so they are hard to predict

  • Inexpensive to Produce

-gold, and silver are expensive because they are hard to find and mine

What are the sources of money’s value?

1. Commodity Money

  • Consists of objects that have value in and of themselves and that are also used as money.
  • For example, salt, cattle, and precious stones have been used in various societies as commodity money.

2. Representative Money

  • Makes use of objects that have value because that holder can exchange them for something of value.
  • For example, if your brother/sister gives you an IOU, the price of paper itself is worth nothing.

3. Fiat Money

  • This is an order or decree. It is also called "legal tender."

What is the source of value for the money in the United States economy?

Fiat Money is currency which derives its value from government regulation or law. It differs from commodity money and representative money. Commodity money is created from a good, such as gold or silver, which has uses other than as a medium of exchange (such a good is called a commodity), while representative money simply represents a claim on such a good.

History of Banking

What was the role of the First Bank of the United States created in 1791?

The Bank of the United States was established in 1791 to serve as a repository for federal funds and as the government’s fiscal agent. Although it was well managed and profitable, critics charged that the First Bank’s fiscal caution was constraining economic development.

What happened in 1832 when the Bank of 1811 lost its charter?

The 1830s were a tumultuous decade for America. The attempt by the Second Bank of the United States for an early recharter was passed by Congress in July 1832, but the bill was vetoed shortly thereafter by President Andrew Jackson. The hopes of the bank's supporters to turn the veto in a winning campaign issue in that fall's presidential campaign failed dismally.

What is the Federal Reserve? What is the role of the Federal Reserve today?

The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics.

The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system.

What is FDIC and when and why was it created?

The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation operating as an independent agency created by the Banking Act of 1933.

The FDIC was created to provide stability to the economy and the failing banking system.

Banking Today

How do economists measure the U.S. money supply?

The entire stock of currency and other liquid instruments in a country's economy as of a particular time. The money supply can include cash, coins and balances held in checking and savings accounts. Economists analyze the money supply and develop policies revolving around it through controlling interest rates and increasing or decreasing the amount of money flowing in the economy. Money supply data is collected, recorded and published periodically, typically by the country's government or central bank. Public and private sector analysis is performed because of the money supply's possible impacts on price level, inflation and the business cycle. In the United States, the Federal Reserve policy is the most important deciding factor in the money supply.

What services do banks provide? How do banks make a profit?

Commercial banks commonly provide checking accounts, savings accounts and various types of loans. Some of their services may overlap with those of investment banks, which focus on speculative transactions such as buying and selling stock.

Banks basically make money by lending money at rates higher than the cost of the money they lend. More specifically, banks collect interest on loans and interest payments from the debt securities they own, and pay interest on deposits, CDs, and short-term borrowings.

What are the different types of financial institutions?

  1. Depositary institutions – deposit- taking institutions that accept and manage deposits and make loans, including banks, builiding societies, credit unions, trust companies and mortgage loan companies;
  2. Contractual institutions – insurance companies and pension funds;
  3. Investment institutions – investment banks, underwriters and brokerage firms.

How has electronic banking affected the banking world?

Online banking provides consumers with a convenient method of conducting bank business from the comfort and security of their own home and personal computer. Consumers can check account balances and review other account information any time of the day or night. Online banking has changed the face of transactional business and affects commerce across many trades and industries.