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MONEY and banking

MONEY and banking. What is Money?. Medium of Exchange Used to determine value during the exchange Unit of Account Ability to compare value of g/s Store of Value Holds value if saved and not spent. What Makes Good Currency?. Durability Portability Divisibility Uniformity Limited Supply

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MONEY and banking

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  1. MONEY and banking

  2. What is Money? • Medium of Exchange • Used to determine value during the exchange • Unit of Account • Ability to compare value of g/s • Store of Value • Holds value if saved and not spent

  3. What Makes Good Currency? • Durability • Portability • Divisibility • Uniformity • Limited Supply • Acceptability

  4. What Backs our Money? • Commodity • Objects that have value in and of themselves • Representative • Holder can exchange them for something of value • Fiat • An order or decree • Has value because the government stands behind it

  5. American Banking history • First National Bank • Conceived under Federalist Hamilton • Held tax money • Commerce powers • Print single currency • Regulate state banks • 20 year charter • Second National Bank • Distrust – popular opinion, Jackson veto • Free Banking • State-chartered • “wildcat”

  6. Civil War • Greenbacks • Union “demand notes” • Confederacy backed currency with cotton • Reunifying Banks • National Banking Acts – Reconstruction • Charter banks • Require reserve • Single currency • Gold Standard • Set value • Limit overprinting

  7. Modern Banking • Federal Reserve System • Not enough gold • Central bank to lend $ to member banks • Establish a board of governors • Control $ supply • Great Depression • High-risk loans • Bank runs, failure • Glass-Stiegle Act • FDIC • Bank holiday • Insure deposits • Fiat money

  8. New problems • Deregulation • Removal or relaxation of government restrictions • Credit Cards – 1962 • Repeal Glass-Stiegle - 1991 • S & L Crisis • New competition • High interest rates • Bad loans, fraud • Credit Crisis • Credit default swaps • Cheap money • Stated Income • Community Reinvestment Act • ARM loans

  9. Banking Options • Mortgage • Loan to buy real estate • Credit/Debit • Promise to pay/withdraw from account • Commercial Bank • Full service, FDIC insured • S & L • Saving Banks • Credit Unions • Finance Company • Make money available for consumer borrowing • Automatic Clearing House • Transfer funds electronically Singular services, Community oriented

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