FINANCE AND ACCOUNTING

Part 1 Money and Banking

MONEY Modern societies have evolved to pay for

goods and services using an indirect monetary system rather than through barter

Anything agreed upon can be used as money

Coins & bills Shells Bitcoin

FUNCTIONS OF MONEY Medium of Exchange

you can exchange your labor for goods and

services indirectly Standard of Value

creates a commonly

agreed upon amount

that items

are worth and cost Store of Value

allows assets to be

stored and saved

CHARACTERISTICS OF MONEY

Must be scarce-if it’s too readily available it won’t retain it’s value

Must be accepted-useless if seller won’t accept it, (Bitcoin, AMEX)

Must be divisible into parts-dollar broke down into quarters, dimes, etc. (8 bits)

Must be portable and durable-$1 bills are in circulation for about

18 months and coins for many years

(pictured Australian 1 tonne gold coin)

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WHERE DOES MONEY COME FROM?

New money is printed and minted by the US Department of the Treasury Bureau of Engraving and Printing US Mint

Philadelphia Denver San Francisco West Point NY

Money is added to the national money supply by the Federal Reserve buying US Treasury bonds.

BANKING Manage, store, maintain the supply and move

around money Store money in checking and savings accounts Transfers money between buyer and seller through

checks, check cards, credit cards Lends money to consumers and businesses

Lending - When someone needs money they don’t have for major purchase (house, car, business upgrade, college tuition) a bank may loan them money. Usually requires COLLATERAL, or something of value

that guarantees that you’ll repay the loan. INTEREST is the amount paid on top of the value of the

loan. Interest is how banks make profit loaning money.

MICRO-LENDING Microloans are loans made to people who may

not have collateral or otherwise don’t qulify for traditional loans

Use of these was pioneered by Bangladeshi economist Mohammad Yunus and his Grameen Bank Yunus would load money to women, the poor and

illiterate to help them start new small businesses. Relied on societal pressure rather than threat of

violence (loan shark) or loss of collateral to guarantee repayment

Lendees make small weekly repayments Yunus won 2006 Nobel Peace Prize for his work

encouraging small business among the poor

MOHAMMAD YUNUSInterview with the New York Times

Microlending on “How Stuff Works”