CH 20 - Money, Financial Institutions, and the Federal Reserve

Vocabulary terms and definitions related to money, the Federal Reserve, banking systems, and electronic fund transfers based on Chapter 20 lecture notes.

Federal Reserve (the Fed)

The organization in charge of money in the US; it buys and sells foreign currencies, regulates credit, supervises banks, and collects economic data.

Money

Anything that people generally accept as payment for goods and services.

Barter

The direct trading of goods or services for other goods or services.

Barter exchange

A system where you put goods or services into the system and receive trade credits for other goods and services you need.

Money supply

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

Quantitative easing (QE)

A process where the Fed creates more money by buying bonds when it believes money is needed to stimulate the economy.

M-1

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

M-2

Money included in M-1 plus assets that take more time to obtain, such as savings accounts, money market accounts, mutual funds, and certificates of deposit.

M-3

M-2 plus large deposits such as institutional money market funds.

Falling dollar value

A condition where the amount of goods and services you can buy with a dollar in global markets decreases, making the dollar 'weak'.

Rising dollar value

A condition where the amount of goods and services you can buy with a dollar increases, making the dollar 'strong'.

Board of Governors

A body that administers and supervises the $12$ Federal Reserve banks and sets monetary policy; appointed by the president and confirmed by the Senate.

Federal Open Market Committee (FOMC)

The policy-making body of the Fed consisting of $12$ voting members, including the board of governors and representatives from the reserve banks.

Reserve requirement

A percentage of commercial banks' checking and savings accounts that must be physically kept in the bank as determined by the Fed.

Open-market operations

The Fed's practice of buying and selling government bonds (US treasuries) to manage the money supply.

Discount rate

The interest rate that the Federal Reserve charges for loans made to member banks.

Central bank

A bank at which other banks can keep their funds and from which they can borrow funds if needed.

Federal Reserve Act of 1913

Legislation that required all federally chartered banks to join the Federal Reserve and allowed state banks to join.

Commercial bank

A profit-seeking organization that receives deposits from individuals and businesses and uses those funds to make loans.

Demand deposit

The technical name for a checking account, indicating the money can be withdrawn at any time on demand.

Time deposit

The technical name for a savings account, where the bank may require prior notice before the owner withdraws money.

Certificate of deposit (CD)

A time-deposit account that earns interest to be delivered on a specific maturity date, during which the depositor agrees not to withdraw funds.

Saving & Loan Association (S&L)

A financial institution, also known as a thrift institution, that accepts savings and checking deposits and provides home mortgage loans.

Credit unions

Nonprofit, member-owned financial cooperatives that enjoy exemption from federal income taxes and offer a full variety of banking services.

Nonbanks

Financial organizations that do not accept deposits but offer various banking services, such as pension funds, insurance companies, and brokerage houses.

Pension funds

Sums of money set aside by corporations, nonprofits, or unions to cover the financial needs of members when they retire.

Federal Deposit Insurance Corporation (FDIC)

An independent agency of the US government that insures bank deposits up to $250,000 per account.

Deposit Insurance (DIF)

Insurance that covers all deposits above the FDIC limits at member banks to protect savings from loss.

National Credit Union Administration (NCUA)

A body that provides up to $250,000 coverage per individual depositor per institution for accounts held at credit unions.

Electronic funds transfer (EFT) system

A computerized system that performs financial transactions such as making purchases, paying bills, and receiving paychecks electronically.

Debit cards

An electronic funds transfer tool that withdraws funds directly from a checking account.

Smart Card

An electronic funds transfer tool combining functions of a credit card, debit card, phone card, and driver’s license.

Direct deposit

A credit made directly to a checking or savings account instead of issuing a physical paycheck.

Direct payment

A preauthorized electronic payment from a customer's checking or savings account to a company on a specified date.

Letter of credit

A promise by a bank to pay a seller a specific amount if certain conditions are met.

Banker’s acceptance

A promise that a bank will pay a specified amount at a particular time without any imposed conditions.

World bank

Also known as the International Bank for Reconstruction and Development, it is primarily responsible for financing economic development in less developed nations.

International Monetary Fund (IMF)

An organization with $190$ member countries that assists the smooth flow of money among nations.

1. Portability

2. Divisibilty

3. Stability

4. Durability

5. Uniqueness

5 standard for useful forms of money