Money

 What is money?

Anything that people accept as payment for goods and services

What is barter?

The direct trading of goods and services for other goods and services

What is the money supply?

The amount of money the Federal Reserve makes available for people to buy goods and services

 What is M-1?

Money that can accessed quickly and easily such as coins, paper money, and traveler’s checks

What is M-2?

M-1 plus money that takes a longer time to obtain like savings accounts or mutual funds

What is M-3?

M-2 plus larger deposits like institutional money market funds

What is the difference between M-1, M-2, and M-3?

Each level includes the previous level plus forms of money that are progressively less easily accessible

What are the five major parts of the Federal Reserve System?

Board of governors / Federal Open Market Committee / 12 Federal Reserve Banks /  3 Advisory Councils / Member banks

What is the Federal Reserve?

The central banking system of the United States that helps control money supply and monetary policy

What is the Federal Reserve?

The central banking system of the United States that helps control money supply and monetary policy

What is the reserve requirement?

The percentage of commercial bank’s checkings and savings deposits that must be physically kept in the bank

What happens when the Fed increases the reserve requirement?

Banks have less money available to lend

What happens when the Fed decreases the reserve requirement?

Banks have more money available to lend

What are open-market operations?

The Fed’s buying and selling of US government bonds to regulate money supply

What happens when the Fed buys government bonds?

It increases money supply by putting more money into the banking system

What happens when the Fed sells government bonds?

It decreases money supply

 What is the discount rate?

The interest rate the Federal Reserve charges member banks for loans

What is the federal funds rate?

Interest rates financial institutions charge one another for overnight loans

What are the major tools of Federal Reserve monetary policy in your notes?

Reserve requirements, open-market options, discount rates

What are the four major parts of the U.S. banking system?

Commercial bank / Saving and loan associations  / Credit unions  / Nonbanks

What is a commercial bank?

A profit-seeking organization that accepts deposits and uses the funds to make loans

Who are the two main customers of commercial banks?

Depositors and borrowers

What is a savings and loan association (S&L)?

A financial institution that accepts savings/checking deposits and provide home mortgage loans 

What are S&Ls also called?

Thrift institutions

 What is a credit union?

A nonprofit, member-owned financial cooperation that provides baking services to its members

What are nonbanks?

Financial organizations that do not accept deposits but provide many banking services offered by traditional banks

What are examples of nonbanks?

Life insurance companies, pension funds, brokerage firms, commercial finance companies, and corporate financial services

What is an electronic funds transfer (EFT) system?

A computerized system that electronically performs financial transactions

What are examples of EFT transactions?

Making purchases, paying bills and receiving paychecks

 What is a debit card?

A card that acts like a check by taking money directly from a checking account

What is a smart card?

A card that combines functions such as credit cards, debit card, phone card, and driver’s license

What is a letter of credit?

A banks’s promise to pay seller a specified amount if certain requirements are met

What is a banker's acceptance?

 A promise that bank will pay specified amount at a certain time

What is the World Bank?

An organization that lends money to primarily less-developed countries to improve productivity and living standards

What is the International Monetary Fund (IMF)?

An organization that promotes cooperative monetary policies to stabilize exchanges between national currencies

What is the FDIC?

The Federal Deposit Insurance Corporation, a U.S government agency that insures bank deposits up to $250,000

How much does the FDIC insure?

Up to $250,000 per depositor, per insured bank, for covered deposits

What is the Deposit Insurance Fund (DIF)?

A fund that covers deposits above FDIC limits at member banks

What is the SAIF?

The savings association insurance fund that ensures account holders in savings and loans associations

What is the NCUA?

The National Credit Union Administration, that provides up to $250,000 of coverage per individual depositor per institution

What is a demand deposit?

A checking account where money can be withdrawn anytime on demand

What is a time deposit?

A savings account where bank may need advanced notice before withdrawal

What is a certificate of deposit (CD)?

A savings account that earns interests and is paid out at certificate’s maturity date

How do commercial banks determine whether to give loans?

Loans are given out based on the recipient’s creditworthiness

What is a pension fund?

Money set aside by na organizations to help meet member’s financial  needs when they retire

What is a brokerage firm?

A financial institution that provides services relating to buying and selling investments

What is a commercial finance company?

A nonbank financial institution that provides financial/loans 

What is inflation?

Too much money chasing too few goods

What is deflation?

A surplus of goods and services compared to money available

What happens when the dollar's value falls?

The amount of goods and services you can purchase with a dollar deceases

What happens when the dollar's value rises?

The amount of goods and services you can purchase with a dollar decreases

Who controls the global money supply?

Central banks

What are the two types of customers at commercial banks?

Depositors and borrowers

What does a commercial bank do with deposited funds?

Uses them to make loans

Why is barter less convenient than money?

It requires the direct trading of goods or services for another thing a person has and wants

What determines whether the dollar rises or falls?

The position of U.S economy in relation to other global economies