Civics Today Chapter 24: Money And Banking

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Three functions of money

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1.Serves as a medium of exchange ----- Means we can trade money for goods and services
2. Money serves as a store of value -----We can hold our wealth in the form of money until we're ready to use it.
2. Money serves as a measure of value.

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Most familiar types of money today:

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coins and currency

Front 3

definition of coins

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metallic forms of money such as pennies , nickels , and dimes

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Currency includes:

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both coins and paper money

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The financial institution covers its costs-and makes a profit- from:

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Interest (fees) it charges for loans

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3 types of financial institutions

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1.Commercial banks
2.Saving and Loan Associations (S&Ls)
3.Credit Unions

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Commercial Banks

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-Financial Institutions
-Offer full banking services to individuals and businesses
-Prob. most important part of our financial system because of their influence
-Most people have their checking and saving accounts in these

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Prob. most important part of our financial system because of their influence

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Commercial Banks

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Most people have their checking and saving accounts in :

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Commercial Banks

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Saving and Loan Associations (S&Ls)

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-financial institutions
-Traditionally loaned money to people buying homes
- Also take deposits and issue savings accounts in return
-Today perform many of the same activities that Commercial banks do

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Credit Unions

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-Work on a not-for-profit basis
-Often sponsored by large buisnesses , labor unions or gov. institutions
-Open only to members of the group that sponsors them , credit unions give these workers a financial institution that has low costs.

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these are often sponsored by large buisnesses , labor unions or gov. institutions

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Credit Unions

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All 3 types of financial institutions act to :

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Bring savers and borrowers together

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The United States has one of the safes financial systems in the world. This high degree of safety results from two factors-

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Regulation and insurance

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The most important insurance agency

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The Federal Deposit Insurance Corporation (FDIC)

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The Federal Deposit Insurance Corporation (FDIC)

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-A federal corporation that insures individual accounts in financial institutions for up to $250,000
-Most important insurance agency

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The central bank of the United States:

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The Federal Reserve System or the Fed

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When Banks need money they borrow from :

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the Fed

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The Federal Reserve System is a banker's BLANK

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Bank

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The United States is divided into BLANK Federal Reserve districts

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12

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Which banks are required to be members of the Fed?

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Federally chartered commercial banks aka national banks

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Fed Board of governors

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-7 members appointed by the president and confirmed by congress/senate
-Serve 14 year terms
-President selects one of the board members to chair the board of governors for a four-year term

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Fed Advisory councils:

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1. One reports on the general condition of the economy in each district
2. Another reports on financial institutions
3. A third reports on issues related to consumer loans

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Who serves on Fed Advisory councils?

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Officials of the district banks

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The Major policy-making group within the Fed is the :

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Federal Open Market Committee (FOMC)

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Federal Open-Market Committee (FOMC)

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-the major policy making group within the fed
-Makes the decisions that affect the economy as a whole by manipulating the money supply
-FOMC has 12 members

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Federal Open-Market Committee (FOMC) has blank members :

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12

7 are permanent members of the board. The other five come from district banks , memberships rotated

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Two main regulatory functions of the Fed

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-It deals with banking regulations
-and consumer credit

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What Oversees many large banks

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The Fed

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If two national banks wish to merge , the BLANK will decide will decide whether the action will lesson competition, If so it will block the merger

BASICALLY WHAT HAS THE ABILITY TO BLOCK OR ALLOW NATIONAL BANK MERGERS?

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The fed

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What regulates connections between american and foreign banks

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the fed

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BLANK oversees the international business of both American banks and national banks that operate in this country

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the fed

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BLANK enforces many laws that deal with consumer borrowing

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the fed

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The three ways the Fed also acts as the government's bank :

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1.Holds the government's money.

2.The fed sells U.S. government bonds and Treasury bills

3.Issues the nation's currency , including paper money and coins , FED CONTROLS CIRCULATION . when currency becomes damaged they send them to the fed for replacement

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Monetary policy is one of the major responsibilites of BLANK

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the fed

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BLANK involves controlling the supply of money and the cost of borrowing money -credit- according to the needs of the economy.

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Monetary Policy

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Blank can increase the supply of money or decrease the supply

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The fed

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The point where where supply of money and demand for money meet sets the

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interest rate

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DEFINE INTEREST RATE

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The rate that people and businesses must pay pay to borrow money

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Several tools the BLANK uses to manipulate the money supply;

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BLANK: The fed
1.The fed can raise or lower discount rates
2. The fed may raise or lower the reserve requirement for member banks
3. The fed can change the money supply through open market operations = The purchase or sale of U.S. gov. bonds and treasury bills.

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DEfine discount rate

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The rate the fed charges members of banks for loans

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If the BLANK wants to stimulate the economy it BLANKS the discount rate it:

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BLANK: THE FED

Lowers the discount rate

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If the BLANK wants to slow down the economy's rate of growth it blanks the discount rate to :

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BLANk : fed
blank: raises
discourage borrowing

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High Discount rates mean :

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banks will borrow less money from the fed

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If the BLANK raises the reserve requirements banks must :

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leave more money with the feds , and therefore have less money to loan

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If the fed lowers the reserve requirements banks have more or less money to loan?

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More to spend

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What are Open Market Operations

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The Purchase or sale of U.S. gov bonds and treasury bills

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If the Fed decides that interest rates are too low it can :

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sell bonds

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Banks are started by :

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Investors

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Checking accounts allow customers to

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write checks or use check cards

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People do not keep money in BLANKS for very long

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checking accounts

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In these types of accounts banks pay interest to customers based on how much money they have deposited

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saving accounts

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Define Certificates of Deposits :

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with these products , customers loan a certain sum to the bank for a specific period of time. In return , the the bank pays interest during that time period. WHen the time period ends the customer returns their certificate and gets their money and the interest back.

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Certificates of Deposits are gotten at the BLANK

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Bank

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Two duties of banks

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Accepting deposits and Making loans

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One of the principal activities of banks is to :

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lend money to businesses and consumers

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Like State banks the United States banks was also :

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privately owned and operated

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Did the United States Bank have a federal or state charter

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Federal

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What did the National Banking Act do?

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-it created the system known as dual banking , in which banks could have either a state or federal charter.

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The Federal Reserve serves as the nation's BLANK with power to :

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BLANK: national bank

: regulate reserves in national banks , make loans to member banks , and control the growth of the money supply.

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the policy that involves changing the rate of growth of the supply of money in circulation

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Monetary policy

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A bank whose main functions are to accept deposits and lend money

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Commercial banks

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A certain percentage of deposits that banks have to set aside as cash in their own vaults as deposits in their Federal Reserve district bank

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Set by reserve requirements

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Paper money issued by the fed reserve

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currency

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The most powerful agency of the federal reserve system

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Federal Open market committee (FOMC)

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A federal corporation that insures up to $250,000

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Federal Deposit Insurance Corporation(FDIC)

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the interest rate the federal reserve charges for loans to member banks is called the

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Discount rate