MoneyMoney

Ch 18Ch 18

I. Functions and uses of I. Functions and uses of MoneyMoneyA.A. Means of exchangeMeans of exchange

1. Money is accepted 1. Money is accepted as an exchange for as an exchange for goods and services.goods and services.

B.B. Store of economic valueStore of economic value

1. Money enables people to 1. Money enables people to store some of their earnings store some of their earnings and save for major and save for major purchasespurchases

a. Accepted places a. Accepted places to store money: banks, to store money: banks, savings and loans, savings and loans, credit unions, etc.credit unions, etc.

2. Use to run the 2. Use to run the economyeconomy

C.C. Standard of ValueStandard of Value1. Money is a convenient 1. Money is a convenient way of indicating the way of indicating the worthworth of different goods of different goods and services.and services.

2.2. Value is placed on money; Value is placed on money; the more acquired more the more acquired more value is givenvalue is given

3.3. Must have money for a Must have money for a market economymarket economy

D.D. Barter SystemBarter System

1. Traditional System1. Traditional System

2.Exchanging goods for 2.Exchanging goods for other goods and servicesother goods and services

3. Only works when 3. Only works when all all people involved people involved agreeagree on on valuevalue of items of items

4. “Money” is not 4. “Money” is not necessary necessary

II. Forms of MoneyII. Forms of MoneyA.A. Currency – Legal TenderCurrency – Legal Tender

1. Paper money and coins1. Paper money and coinsB.B. Checking AccountsChecking Accounts

1. Not legal tender1. Not legal tender2. Demand Deposits – most 2. Demand Deposits – most common type of checking acctcommon type of checking acct

3. N.O.W. (3. N.O.W. (NNegotiated egotiated OOrder of rder of WWithdrawal)ithdrawal)

a. Acts like a checking accounta. Acts like a checking account

b. Balance in the account earns b. Balance in the account earns interestinterest

c. Minimum balance is usually c. Minimum balance is usually very high: $2,000 – $5,000 very high: $2,000 – $5,000

C. Savings AccountC. Savings Account1. Earns depositor interest1. Earns depositor interest2. Simple passbook account2. Simple passbook account—earns interest on balance—earns interest on balance

a. able to deposit money a. able to deposit money and withdraw at any time and withdraw at any time without penaltywithout penalty

3. Can not write checks 3. Can not write checks

4.4. Special Savings Special Savings AccountsAccounts: Timed : Timed Deposit AccountsDeposit Accounts

a.a. C.DC.D. = Certificate of . = Certificate of DepositDeposit

1. Earns higher interest 1. Earns higher interest for longer periods of time for longer periods of time

2. Example: 6 mo, 12 2. Example: 6 mo, 12 mo, 18mo, 2yrs, 5 yrs, etcmo, 18mo, 2yrs, 5 yrs, etc

b. b. I.R.AI.R.A. (Individual . (Individual Retirement Account)Retirement Account)

1. Tax free money 1. Tax free money saved by individuals, saved by individuals, which earn high interestwhich earn high interest

2. Taxes are paid 2. Taxes are paid upon withdrawal—upon withdrawal—usually after 55 or 60 usually after 55 or 60 yrs.yrs.

III. Near MoneyIII. Near Money-acts like money but in -acts like money but in reality they are loansreality they are loans1. Credit Cards1. Credit Cards

a. Credit cards are a. Credit cards are “loans” to the user from the “loans” to the user from the credit card company.credit card company.

b. Most companies, like b. Most companies, like MasterCard or Visa, do not MasterCard or Visa, do not charge fees for joining charge fees for joining

c. They earn their money on c. They earn their money on interest charged for interest charged for all the all the unpaid balances.unpaid balances.

2. Stocks, Bonds, 2. Stocks, Bonds, Insurance Policies Insurance Policies

IV. Federal Reserve BankIV. Federal Reserve Bank

A. BackgroundA. Background1. Founded in 1913 1. Founded in 1913

during President during President Woodrow Wilson’s Woodrow Wilson’s Administration.Administration.

2.2. Known as the “Banker’s Bank”Known as the “Banker’s Bank”a. Where the banks borrow a. Where the banks borrow moneymoneyb. 12 Federal Banks (Districts) b. 12 Federal Banks (Districts) exist.exist.

1. Most of them are on 1. Most of them are on the east coast.the east coast.

3.3. The Federal Banks distribute The Federal Banks distribute all money and coins from all money and coins from Bureau of Engraving and U.S. Bureau of Engraving and U.S. Mint. Mint. The United States MintThe United States Mint

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4. Banks are clearinghouse of 4. Banks are clearinghouse of all checks.all checks.

5. All National Banks are 5. All National Banks are members of the Federal members of the Federal Reserve and insured by the Reserve and insured by the federal government.federal government.((FDICFDIC)= )= FFederal ederal DDeposit eposit IInsurance nsurance CCorporationorporation