business 3

• Money


  Anything generally accepted in exchange for goods and services
• Fiat money


  A paper money not readily convertible to a precious metal such as gold
• Functions of Money


  • Medium of exchange
  • Measure of value
  • Store of value
• Characteristics of Money


  • Acceptability
  • Divisibility
  • Portability
  • Stability
  • Durability
  • Difficult to counterfeit
• The U.S. government redesigns currency to stay ahead of counterfeiters and protect the public.
• Types of Money


  • Paper money and coins
  • Checking account (demand deposit)
  • Savings account (time deposit)
  • Money Market Accounts
  • Certificates of Deposit (CDs)
  • Credit cards
  • Debit card
  • "Near" money
  • Cryptocurrency
• Credit cards have many advantages, including being able to buy expensive items and pay them off a little at a time. However, this can easily lead an individual to incur spiraling credit card debt that is hard to pay off.
• Four major functions of the Federal Reserve Board


  • Controls the supply of money, or monetary policy
  • Regulates banks and other financial institutions
  • Manages regional and national check-clearing procedures
  • Supervises the federal deposit insurance programs of banks belonging to the Federal Reserve System
• Monetary Policy


  The means by which the Fed controls the amount of money available in the economy
• Fed Tools for Regulating the Money Supply

  • Buy government securities
  • Sell government securities
  • Raise discount rate
  • Lower discount rate
  • Increase reserve requirements
  • Decrease reserve requirements
  • Relax credit controls
  • Restrict credit controls
• Open market operations are the most commonly employed of all Fed operations; performed almost daily
• Reserve Requirements


  Percentage of deposits that banking institutions must hold in reserve
• Discount Rate


  Rate of interest the Fed charges to loan money to banking institution to meet reserve requirements
• Credit Controls


  Authority to establish and enforce credit rules for financial institutions and some private investors
• Other Functions of the Federal Reserve Board

  • Regulatory functions
  • Check clearing
  • Depository insurance
• Banking Institutions


  • Commercial Banks
  • Savings and Loan Associations
  • Credit Unions
  • Mutual Savings Banks
• Citibank is the consumer division of Citigroup, one of the four largest banks in the United States.
• Federal Deposit Insurance Corporation (FDIC)


  An insurance fund established in 1933 that insures individual bank accounts
• National Credit Union Association (NCUA)

  Agency that regulates and charters credit unions and insures their deposits through its National Credit Union Insurance Fund
• Nonbanking Institutions


  • Diversified firms
  • Insurance companies
  • Pension funds
  • Mutual funds
  • Money market fund
  • Brokerage firm
  • Investment banker
  • Finance companies
• State Farm is the largest auto and home insurer. Its website allows users to input their information and receive an auto insurance quote quickly and conveniently.
• Electronic Banking


  • Electronic funds transfer
  • Automated teller machines
  • Automated clearinghouses
  • Online Banking
• Advances in technology are challenging and changing the banking industry
• During 2007 to 2008, the financial markets collapsed under the weight of declining housing prices, subprime mortgages (mortgages with low-quality borrowers), and risky securities backed by these subprime mortgages
• Peer-to-peer lenders like Prosper, a company that matches investors and borrowers with loans between $2,000 and $35,000
• Other sources of funding by Internet websites such as GoFundMe and Kickstarter help people raise funds for things as diverse as health care issues to creative projects in art, film, games, and music
• Computers and handheld devices have made online banking extremely convenient. However, hackers have stolen millions from banking customers by tricking them into visiting websites and downloading malicious software that gives hackers access to their passwords.
• Critical Thinking Questions


  • List the various types of U.S. financial institutions and the primary function of each
  • What services of each financial institution is Hill's new company likely to need?
  • Which single financial institution is likely to be best able to meet Hill's small company's needs now? Why?