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McGraw-Hill/Irwin Understanding Business, 8e. © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Nickels McHugh McHugh. *. *. Understanding Money, Financial Institutions, and the Federal Reserve. *. CHAPTER. 20. *. *. 1- 1. Why Money?.

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  1. McGraw-Hill/Irwin Understanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Nickels McHugh McHugh * * Understanding Money, Financial Institutions, and the Federal Reserve * CHAPTER 20 * * 1-1

  2. Why Money? • Economy Depends On It • Money vs. Barter • Unit of Value • Electronic Cash • Money Supply • Global Exchange- Rise/Fall of Dollar & U.S. Economy

  3. Characteristics Of A Good Money System • Portability • Divisibility • Stability • Durability • Uniqueness

  4. Cost of Pennies • The cost of manufacturing a penny is worth more than 1-cent • The Mint estimates it will cost 1.23 cents per penny • The cost of producing a penny has risen 27% in the last year • Added penny and nickel expenses will reduce the Mint’s profit this year by $45 million Source:www.usatoday.com, May 10, 2006

  5. $ Bills and Coins Source: U.S. Department of Treasury, FY 2005 Performance and Accountability Report

  6. The Money Supply Time Deposits & Money Market Accts. Total M2 *SA Demand Deposits + + = = TotalM1 Currency *SA = Seasonally Adjusted

  7. Life Span of Currency Source: Bureau of Engraving and Printing

  8. Federal Reserve Structure Board of Governors Federal Open Market Committee Advisory Councils Member Banks Federal Reserve Banks

  9. Regional Reserve Banks

  10. Federal Reserve • Buys/Sells Foreign Currency • Regulates Credit • Supervises Banks • Collects Data on Money Supply/Economic Activities • Processes Checks

  11. Monetary Policy • Reserve Requirement • Tight/Increase • Loose/Decrease

  12. Fed Regulates Money Supply Slow Down Reduce Money Supply Increase Discount Rate Sell Government Bonds Set Credit Controls Expand Increase Money Supply Reduce Discount Rate Buy Government Bonds Set Credit Controls

  13. Federal Reserve System • History • Land Banks • Central Bank • Great Depression • Structure

  14. American Banking System Depository • Commercial Banks • Savings and Loan Associations/Thrifts • Credit Unions Non-depository • Life Insurance Companies • Pension Funds • Brokerage Firms • Finance Companies

  15. United States’ Largest Banks Assets In Billions Source: Infoplease.com

  16. Services Available at Most Commercial Banks

  17. Thrift Highlights Office of Thrift Supervision (OTS): • There are 854 thrifts supervised by OTS • In addition, OTS supervised 480 company enterprises that owned 448 thrifts • Thrift industry controlled over $1.5 trillion in total assets (2nd Quarter of 2006) Source: www.ots.treas.gov, August 23, 2006

  18. Number of Credit Unions Source:www.ncua.gov

  19. Regulation ofFinancial Institutions • Federal Reserve Board • FDIC • SAIF(FSLIC) • NCUA

  20. Future of Banking • Repeal of Glass-Steagall (1933) • Gramm-Leach-Bliley (1999) • One-Stop Shopping

  21. Number of HouseholdsThat Bank Online In Millions Source: USA Today, “Snapshots”, and CNNMoney.com

  22. Safe Online Banking • Verify Bank Uses Encryption Technology • Bank Has Liability Guarantee • Pick Random PIN Code- Letters & Numbers • Regularly Scan For Unauthorized Transactions • Use Anti-Virus Software & Firewall Source: Parade Magazine, May 18, 2003

  23. Electronic Banking Trends in the U.S. • Internet • Electronic Funds Transfers (EFTs) • Check Conversion • Debit Card- Teenagers • Smart Card • Automatic Transfers

  24. When Will The U.S. Become Cashless? Source: New Designs for Your Money, U.S. Department of Treasury

  25. International Banking • Currency or Money Exchange • Letter of Credit • Banker’s Acceptance • World Bank • IMF

  26. World’s Largest Banks In Billions Source: USA Today, “Snapshots”

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