Chapter 16: Understanding Money and the Role of Banking

What is Money?

object that is portable, divisible, durable, and stable, and that serves as a medium exchange, a store of value, and a measure of worth

check

demand deposit order instructing a bank to pay given sum to a specified payee

Commercial Bank

company that accepts deposits that it uses to make loans, earn profits, pay interest to depositors, and pay dividends to owners

credit union

nonprofit, cooperative financial institution owned and run by its members, usually employees of a particular organization

discount rate

interest rate at which member banks can borrow money from the Fed

Electronic Funds Transfer (EFT)

communication of fund-transfer information over wire, cable, or microwave

Exchange Rate

the value of one currency compared to the value of another

Federal Deposit Insurance Corporation (FDIC)

federal agency that guarantees the safety of deposits up to $250,000 in the financial institutions that it insures

Federal Reserve System (The Fed)

central bank of the United States, which acts as the government’s bank, serves member commercial banks, and controls the nation’s money supply

International Monetary Fund (IMF)

UN agency consisting of about 150 nations that have combined resources to promote stable exchange rates, provide temporary short-terms loans, and serve other purposes

M-1

measure of the money supply that includes only the most liquid (spendable) forms of money

M-2

measure of the money supply that includes all the components of M-1 plus the forms of money that can be easily converted into spendable forms

Monetary Policy

management of the nation’s economic growth by managing the money supply and interest rates

• By controlling these two factors, the Fed influences the ability and willingness of banks throughout the country to loan money

Money Market Mutual Fund

fund of short-term, low-risk financial securities purchased with the pooled assets of investor-owners

Mutual Savings Bank

financial institution whose depositors are owners sharing in its profits

pension fund

nondeposit pool of funds managed to provide retirement income for its members

Point-of-Sale (POS) Terminal

electronic device programmed with electronic money that transfers funds from the customers bank account to pay for retail purchases

Reserve Requirement

percentage of its deposits that a bank must hold in cash or on deposit with the Fed

Savings and Loan Association (S&L)

financial institution accepting deposits and making loans primarily for home mortgages

securities investment dealer (broker)

financial institution that buys and sells stocks and bonds both for investors and for its own accounts

time deposit

bank funds that have a fixed term of time to maturity and cannot be withdrawn earlier or transferred by check

trust services

management by a bank of an estate, investments, or other assets on behalf of an individual

World Bank

UN agency consisting of about 150 nations that have combined resources to promote stable exchange rates, provide temporary short-term loans, and serve others