chapter 10 section 3 – banking today. objectives 1. explain how the money supply in the united...
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Chapter 10Section 3 – Banking Today
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Objectives
1. Explain how the money supply in the United States is measured.
2. Describe the services that banks provide.
3. Identify different types of financial institutions.
4. Analyze the changes brought about by electronic banking.
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RiddleI have 3 coins that total 25 cents
and one of the coins is not a nickel. What are the three coins?
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Money Supply Categories
M1 M2
Liquidity◦ Money that can be easily
accessed and immediately used for goods and services
CurrencyFunds in checking
accountsTraveler’s checks
“Near money”Cannot be used as
cash directly but can be converted fairly easily
Savings Account Funds
Money Market Mutual Funds
Certificates of Deposit
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M1 or M2?Checking accountDollar billPersonal checkA new carTraveler’s check1-carat diamondCertificate of DepositSavings bondIndividual Retirement Account
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Banking ServicesStoring Money
◦Insured from robbery and bank failure
Saving Money ◦Savings and Checking◦Money Market Accounts
Min amt of checks, interest rate can vary
◦Certificates of Deposit Don’t touch for 1 or 2 yr, high
fixed int. rate
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Services…Loans
◦Fractional reserve banking◦Lend money to people and charges
interest◦Default
Mortgages◦A loan for buying real estate◦Interest
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ServicesCredit Cards
◦Mini loansSimple Interest
◦Money paid on the principalCompound Interest
◦Money paid on the principal and simple interest
The amount of interest paid out by banks is less than the interest charged on loans
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For ExampleYou deposit $100 in a savings
account at 5% simple interest. You will make $5 in a year if paid annually.
If you leave that $105 in account your compound interest would be 5% on $105 = $5.25. Instead of just 5% on the. $100
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Electronic BankingATMsDebit CardsHome Banking
◦Online bankingAutomatic Clearing Houses
◦Automatically pays billsStored Value Cards
◦Gift Cards, Phone Cards, Smart cards issued to college students