Money and Banking Industry

Sarah Park

Money

  • Money is the current medium form of exchange in coins and banknotes
  • The 3 uses of money are medium of exchange, unit of account, and store of value
  • The 6 characteristics of money are durability, portability, divisibility, uniformity, limited supply, and acceptability
  • The 3 sources of money are commodity money, representative money, and fiat money
  • The United States uses the monetary unit which uses American dollars for the value of money in the economy

History of Banking

  • The First Bank was the central bank of the United States
  • President Andrew Jackson removed all federal funds from the bank after his reelection in 1832
  • Today, the Federal Reserve's responsibilities fall into four general areas, conducts the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices, supervises and regulates banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers, maintains the stability of the financial system and containing systemic risk that may arise in financial markets, provides certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems.
  • The Federal Deposit Insurance Corporation provides deposit insurance on the depositor's account. It was created because depositors were losing most/all of their savings during the Great Depression

Banking Today

  • M1: money which people can gain access to easily and immediately, or that 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: all the assets in M1 and additional assets, and is also known as near money. These additional assets cannot 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
  • Banks offer checking accounts or DDAs, savings accounts and time deposits, debit cards, credit cards, smart cards, and electronic funds transfer (EFT)
  • Banks use depositors' money to make loans. The amount of interest the banks collect on the loans is greater than the amount of interest they pay to customers with savings accounts—and the difference is the banks' profit
  • Depositary institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies; Contractual institutions – insurance companies and pension funds
  • 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