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Understanding business 8th by mc chugh nickels chapter 20

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Understanding
Money,
Financial
Institutions,
and
the Federal
Reserve

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CHAPTER

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20

Nickels


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McHugh

McGraw-Hill/Irwin
Understanding Business, 8e

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McHugh
1-1

20-1

© 2008 The McGraw-Hill Companies, Inc., All Rights


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Why Money?


Economy Depends On It



Money vs. Barter



Unit of Value



Electronic Cash




Money Supply



Global Exchange- Rise/Fall of Dollar & U.S. Economy

20-2


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Characteristics Of
A Good Money System

• Portability
• Divisibility
• Stability
• Durability
• Uniqueness
20-3


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Cost of Pennies
The cost of manufacturing a penny is worth more than 1-cent
The Mint estimates it will cost 1.23 cents per penny
The cost of producing a penny has risen 27% in the last year
Added penny and nickel expenses will reduce the Mint’s profit this year by $45 million

Source:www.usatoday.com, May 10, 2006

20-4


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$ Bills and Coins

Source: U.S. Department of Treasury, FY 2005 Performance and Accountability Report

20-5


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The Money Supply

Deman = Total
d
M1
Deposit
s
*SA = Seasonally
Adjusted

Currenc
y

+

+

Time
Deposits &
Money
Market
Accts.

=

Total
M2 *SA

20-6


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Life Span of Currency

Source: Bureau of Engraving and Printing

20-7


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Federal Reserve
Structure
Board of Governors

Advisory Councils

Federal Open
Market Committee

Federal Reserve
Banks

Member Banks

20-8


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Regional Reserve Banks

20-9


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Federal Reserve

• Buys/Sells Foreign Currency
• Regulates Credit
• Supervises Banks
• Collects Data on Money
Supply/Economic Activities

• Processes Checks
20-10


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Monetary Policy

• Reserve
Requirement

• Tight/Increase
• Loose/Decrease
20-11


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Fed Regulates Money Supply
Slow Down
Reduce Money Supply
Increase Discount Rate
Sell Government Bonds
Set Credit Controls

Expand
Increase Money Supply
Reduce Discount Rate
Buy Government Bonds
Set Credit Controls

20-12


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Federal Reserve System

• History

• Land Banks
• Central Bank
• Great
Depression

• Structure
20-13


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American Banking System
Depository

• Commercial Banks
• Savings and Loan


Associations/Thrifts
Credit Unions

Non-depository

• Life Insurance




Companies
Pension Funds
Brokerage Firms
Finance Companies
20-14


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United States’
Largest Banks

Assets In Billions

Source: Infoplease.com

20-15


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Services Available at Most
Commercial Banks

20-16


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Thrift Highlights
Office of Thrift Supervision (OTS):




There are 854 thrifts supervised by OTS
In addition, OTS supervised 480 company enterprises that owned 448 thrifts
Thrift industry controlled over $1.5 trillion in total assets (2 nd Quarter of 2006)

Source: www.ots.treas.gov, August 23, 2006

20-17


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Number of Credit Unions

Source:www.ncua.gov

20-18


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Regulation of
Financial Institutions

• Federal Reserve Board
• FDIC
• SAIF(FSLIC)
• NCUA
20-19


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Future of Banking

• Repeal of Glass-Steagall (1933)
• Gramm-Leach-Bliley (1999)
• One-Stop Shopping

20-20


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Number of Households
That Bank Online
In Millions

Source: USA Today, “Snapshots”, and CNNMoney.com

20-21


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Safe Online Banking






Verify Bank Uses
Encryption Technology
Bank Has Liability
Guarantee
Pick Random PIN CodeLetters & Numbers
Regularly Scan For
Unauthorized Transactions
Use Anti-Virus Software &
Firewall

Source: Parade Magazine, May 18, 2003

20-22


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Electronic Banking
Trends in the U.S.


Internet



Electronic Funds Transfers (EFTs)



Check Conversion



Debit Card- Teenagers



Smart Card



Automatic Transfers

20-23


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When Will The U.S.
Become Cashless?

Source: New Designs for Your Money, U.S. Department of Treasury

20-24


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International Banking

• Currency or Money
Exchange
• Letter of Credit

• Banker’s Acceptance
• World Bank
• IMF
20-25


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