Vocabulary

Currency- Coins and paper bills used to purchase goods/services.

Certificate of Deposit- Earns a higher interest rate than a savings/checking account but you are unable to have access to your money for a set period of time

Stocks- Ownership shares of a corporation that can be bought and sold

Monetary Policy- Conducted by “The Fed”, it is the increasing or decreasing of the money supply.

Fed- The national bank of the United States.

Money and the Banking System

Why does money have value?

We are absolutely certain that someone else will accept its value as well. Medium of Exchange

Money can be exchanged for any good or service

Functions of Money

Medium of ExchangeBarter System

People had to trade goods or services they possessed for goods or services they wanted

Very inconvenient This caused the creation of

money to use for a medium of exchange

Measure of Value Money assigns a value to a

good or service and can then be exchanged in the market place

Types of Money

Coins: Metallic forms of money such as pennies, nickels, etc.

Currency: Both (coins and paper)

Spending, Borrowing, and Investment

Spending Money Checking Accounts

Called Demand Deposits because your money is available “on demand”

Used by writing a check or using a debit card

Credit Credit Cards act as a loan The purchaser is deferring

payment until a later date and must pay interest on the purchase

Certificate of Deposit (CD) Called Time Deposits because

you only have access to your money after a set amount of time

Earn a higher interest rate than a checking/savings account

Types of financial institutions

Demand Deposit and Time Deposit Accounts are usually held at either a commercial bank, credit union or savings and loan

1. Commercial Banks - Receive deposits of money, extend

credit, and provide loans- Banks make money on the interest

they collect from loans- Collateral

- Requirement to obtain a loan, collateral is anything of value that can be used to cover the cost of the loan if you don’t pay

2. Savings and Loans - Traditionally loaned money to people

buying homes

3. Credit Unions Open only to workers of a certain

group Can offer higher interest rates to its

customers

Stocks, Bonds, and Mutual Funds

Stocks Shares in a company that

an individual purchases giving that person part ownership

Can be very rewarding and very risky AFLAC and ENRON

Mutual Funds Helps minimize risk Pool money from many

investors to buy a range of stocks

Lower rate of return

Bonds Bought by individuals Loans to either a

company or government

Insurance

Insurance When you buy a stock

you are accepting the risk. Insurance involves transferring risk to others

Paying money to an insurance company so if what you value is lost or damaged the insurance company will pay for it

Life Insurance Provides money to one’s family

if they die Term Life Insurance Whole Life Insurance

Health/Medical Insurance Covers health and medical

expenses Liability Insurance

Provides protection from claims arising from injuries or damage to other people/property Homeowner, auto insurance

Comprehensive Liability Covers businesses from wide

range of catastrophes

Businesses and Investment

Capital Investment Investing profits in

capital to make the company more efficient

Pension Funds Mutual funds set up by

employers to allow employees to save for retirement

Employees pay into the fund and gain interest

Is Your Money Safe?

U.S. has one of the safest financial systems in the world.

FDIC- Federal Deposit Insurance Commission - Insures accounts of

up to $100,000- Created after Great

Depression

The Federal Reserve

Functions:1. Act as the gov’t

bank2. Conducting

Monetary Policy Controlling the supply

of money and the cost of borrowing money

Changing the Money Supply

The FED does this in 3 ways:1. Reserve Requirement2. Discount Rate3. Open Market

Operations

reflection

What is “medium of exchange”? Why is the Barter system inconvenient? Why is a checking account called a “demand deposit”? What does a credit card company offer? Why might someone choose to put money in a Certificate of

Deposit? Summarize the differences between a Commercial Bank,

Savings and Loans, and Credit Unions. Why might someone choose to invest in a Mutual Fund? What is the purpose of buying insurance? What is the purpose of the FDIC? What role does the Federal Reserve play in our economy?

Closing ?

What are the two ways a person can make money in the stock market?

Capital gain- Sell stock for more than you bought it

Dividend- Receive part of corporate profits based on how much stock you hold