Functions and Characteristics of Money and Banking

Functions of money

Medium of exchange, Standard of value, Store of value

Characteristics of money

Acceptability, Scarcity, Portability, Durability, Divisibility, Stable

Commodity-backed money

Banknotes given in exchange for gold or silver.

Fiat money

Money not backed by gold or silver.

M1 money

The measure of all US physical money in circulation.

M2 money

The measure of all funds in the economy, including savings deposits.

How do credit cards work

A line of credit showing how much money you can spend up to a limit, repaying the borrowed amount through interest.

legal tender

Coins or banknotes that can be accepted while paying off debt.

Why silver and gold are preferred as money

Because it has value in trade.

What are consumer loans

Loans taken out by individuals, used for major purchases (cars or schooling).

What are commercial loans

Loans taken out by businesses, used for machinery, equipment, materials, or to pay labor costs.

What are mortgages

Loans taken out by consumers or businesses, used for houses, land, office buildings.

What banks do

To serve as financial intermediaries, make loans, accept deposits, both checking and savings.

Average American savings

About $62,400.

Social security retirement plan

Provides cash payments to retired workers, funded by taxes paid by workers and employers.

Company retirement plans

The most common is a 401(k), where money is taken out of a paycheck and put into a retirement account.

Personal savings for retirement

IRAs are private retirement accounts by the government that can deduct contributions from taxes or withdraw tax-free at retirement.

What are stocks

Investors buy shares and receive a portion of the company's profit through payments.

Low risk retirement plans

Government bonds and mutual funds.

High risk retirement plans

Stocks.

What are high return investments

Stocks and corporate bonds.

Examples of money supply

All the saving and checking accounts, travelers checks, coins, and cash in circulation.

What are the main function of the Fed

Regulating and managing banks to ensure money is safe, acts as the central bank of the USA.

Customers of the Fed rely on ___________

the loans of private banks.

What is a entrepreneur

Someone who starts and manages a business.

Sole proprietor business

The single person owns and operates the business, with no legal distinction between the owner and the business.

Partnership business

Two or more people agree to share the profits and losses of a business.

Corporation business

Legal business is separate and distinct from its owners.

Advantages of owning a franchise

The parent company is already established, expands quickly and cheaply, provides support, training, management, and advertising.

Disadvantages of owning a franchise

Expensive to enter, royalties, low independence, strict rules, and procedures.

Cooperative businesses

A business owned and operated by a group for shared benefit, providing items at a lower price.

What are nonprofits?

Functions like a business, but not for profit, can be public or private, a trust, foundation, for human rights, or churches.

Role of the board of a corporation

The governing body oversees the company's operations, acting as the owners.

CEO in a corporation

Makes significant decisions, sets long-term goals, and overall runs the business.

What are foundations

Nonprofits that provide funding and support to charities through grants.

Land trusts

Directly fund land for historical or recreational purposes.

Liability

What businesses owe to others financially.