Money and Banking Industry

Sydney Springfield

Money

Money is a medium of exchange, where people can use it to buy or sell from one another. it is also the assets, property, and resources owned by someone or something.

THE THREE USES OF MONEY
- medium of exchange
- unit of account
- store of exchange


SIX CHARACTERISTICS OF MONEY
- Durability
- Portability
- Divisibility
- Uniformity
- Limited Supply
- Acceptability

SOURCES OF MONEY'S VALUE
- Commodity Money
~ an object. Consists of objects that have value in and of themselves and that are also used as money. Only works in simple, traditional economies because it is often not portable, durable, or divisible.
- Representative Money
~ Makes use of objects that have value because the holder can exchange them for something else of value. Early representative money took the form of paper receipts for gold or silver
- Fiat Money
~ "legal tender" has value because the government has decreed that it is an acceptable means to pay debts. The government controls and and limits the supply of the money in circulation, therefore maintaining its value.


The United State's source of value for money is a mix of fiat and representative money.

History of Banking

The role of the first bank of the United States created in 1791 was to create one unit of currency in the states after the Revolutionary War to help with debt. It served as a repository for federal funds and as the government's fiscal agent. It was given a 20 year charter.

In 1811, the 20 year charter was expired and the first bank of 1791 went out of operation.
Because of the War of 1812, the second bank of the United States emerged. When the election came in 1832 between Henry Clay and Andrew Jackson, banks became a hot topic. Jackson won and removed all federal funds from the Bank. When the second Bank's charter ended in 1836, it ended its operations as well.


FDIC is the Federal Deposit Insurance Corporation. It was created by Congress in 1933. It insures costumer deposits if a bank fails. Initially, this corporation only insured up to $2,500. Today, it insures up to $250,00 per costumer.

Banking Today

Economists measure the U.S money supply three different ways ~ M1 and M2

M1: represents money which people can gain access to easily and immediately, or at which is liquid. This money is made up of currency held by the public, deposits in checking accounts (demand deposits) and traveler's checks.

M2: consists of all the assets of M1 and additional assets, and is also known as near money. These additional assets can't be used as cash directly, but can be converted to cash fairly easily. Deposits in savings accounts are included in M2, as well as deposits in money market mutual funds.

The current U.S money is supply is about $4 million


SERVICES BANKS PROVIDE
- Storing Money
- Saving Money
- Loans
- Mortgages
- Credit Cards
- Simple and Compound Interest


TYPES OF FINANCIAL INSTITUTIONS
- Commercial Banks
- Savings and Loan Association
- Savings Banks
- Credit Unions
- Finance Companies


Banks use depositor's money to make loans. The amount of interest the bank's collect on the loans is greater than the amount of interest they pay to costumers with savings accounts. The difference is the bank's profit.

HOW ONLINE BANKING HAS AFFECTED THE BANKING WORLD
- limited teller transactions
- 24 Hour access
- increase in criminal activity
- financial integration