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Preview Questions

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Title: Preview Questions


1
(No Transcript)
2
Introduction
3
Preview Questions
  • What is money?
  • What backs the U.S. dollar?

4
Preview Questions
  • What are the functions of the Federal Reserve
    System?
  • Who is involved in the process of transferring
    funds from savers to investors?

5
Chapter Outline
  • The Functions of Money
  • Monetary Standards, or What Backs Money
  • Defining the U.S. Money Supply

6
Chapter Outline
  • The U.S. Banking Structure
  • The Federal Reserve System

7
Did You Know That...
  • The typical dollar bill changes hands 50 times a
    year?
  • Cash, of course, is not the only thing we use as
    money.

8
Money
  • Money
  • Anything that people generally accept in exchange
    for goods and services

9
Types of Money
10
The Functions of Money
  • The functions of money are
  • 1) Medium of exchange - Any asset that sellers
    will accept as payment
  • 2) Unit of accounting - A measure by which prices
    are expressed
  • 3) Store of value (purchasing power)- The ability
    to hold value over time
  • 4) Standard of deferred payment - use as a means
    of settling debts maturing in the future

11
The Functions of Money
  • Liquidity
  • The degree to which an asset can be acquired or
    disposed of without much danger of any
    intervening loss in nominal value and with small
    transaction costs
  • Money is the most liquid asset.

12
Quick Quiz
  • The four functions of money are

Medium of Exchange
Unit of Accounting
Store of Value
Standard of Deferred Payment
13
Monetary Standards,or What Backs Money
  • Questions
  • What backs money?
  • Is it gold, silver, or the federal government?
  • Answer
  • Confidence

14
Monetary Standards,or What Backs Money
  • Fiduciary Monetary System
  • The currency is issued by the government and its
    value is based uniquely on the publics faith
    that the currency represents command over goods
    and services.

15
Monetary Standards,or What Backs Money
  • Fiduciary Monetary System
  • Acceptability
  • Where have the 2 bills gone and Susan B. Anthony
    dollar coins
  • Predictability of value and confidence

16
Defining the U.S. Money Supply
  • The Transaction Approach M1
  • 1) Currency -Minted coins and paper currency not
    deposited in financial institutions
  • 2) Checkable (transaction) deposits -Checkable
    Deposits
  • Any deposits in a thrift institution or a
    commercial bank on which a check may be written
  • Thrift Institution
  • Financial institutions that receive most of their
    funds from the savings of the public
  • 3) Travelers checks - Purchased from a bank and
    signed when making purchases

17
Composition of the U.S. M1 and M2 Money Supply,
1998
18
Defining the U.S. Money Supply
  • Are Credit Cards Money?
  • Defer rather than complete transactions
  • Are Debit Cards Money?
  • Instruction to bank to transfer funds

19
Defining the U.S. Money Supply
  • The Liquidity Approach M2
  • M2 M1 savings deposits and small
    denomination time deposits overnight
    repurchase agreements overnight Eurodollars
    deposits retail money market mutual funds
    money market deposit accounts
  • Near Monies
  • Assets that are almost money
  • Highly liquid

20
Defining the U.S. Money Supply
  • M2
  • Savings Deposits
  • Interest-earning funds that can be withdrawn at
    any time without payment of a penalty

21
Defining the U.S. Money Supply
  • M2
  • Time Deposit
  • A deposit in a financial institution that
    requires notice of intent to withdraw or must be
    left for an agreed period.
  • Early withdrawal may result in a penalty
  • Certificates of Deposit

22
Defining the U.S. Money Supply
  • M2
  • Money Market Deposit Accounts (MMDAs)
  • Accounts issued by banks yielding a market rate
    of interest with a minimum balance requirement
    and a limit on transactions

23
Defining the U.S. Money Supply
  • M2
  • Repurchase Agreement (REPO, RPs)
  • An agreement made by a bank to sell Treasury or
    federal agency securities to its customers,
    coupled with an agreement to repurchase them at a
    price than includes accumulated interest

24
Defining the U.S. Money Supply
  • M2
  • Eurodollar Deposits
  • Deposits denominated in U.S. dollars but held in
    banks outside the United States

25
Defining the U.S. Money Supply
  • M2
  • Money Market Mutual Funds
  • Funds of investment companies that obtain funds
    from the public that are held in common and used
    to acquire short-maturing credit instruments

26
Composition of the U.S. M1 and M2 Money Supply,
1998
27
Composition of the U.S. M1 and M2 Money Supply,
1998
28
The U.S. Banking Structure
  • Central Bank
  • A bankers bank
  • An official institution that also serves as the
    bank to a countrys treasury
  • Normally regulates commercial banks

29
The U.S. Banking Structure
  • The Fed
  • The Federal Reserve System
  • The central bank of the United States

30
The U.S. Banking Structure
  • Financial Intermediaries Sources and Uses of
    Funds
  • Institutions that transfer funds between ultimate
    lenders (savers) and ultimate borrowers

31
The U.S. Banking Structure
  • Financial Intermediation
  • The process by which financial institutions
    accept savings from businesses, households, and
    government and lend the savings to other
    businesses, households, and governments

32
The Process ofFinancial Intermediation
33
The U.S. Banking Structure
  • Liabilities
  • Amounts owed
  • The legal claims against a business or household
    by nonowners

34
The U.S. Banking Structure
  • Assets
  • Amounts owned
  • All items to which a business or household holds
    legal claim

35
Financial Intermediariesand Their Assets and
Liabilities
Financial Intermediary Assets Liabilities
Commercial banks Car loans and other
consumer Transactions accounts debt, business
loans, savings deposits, various government
securities, other time deposits, money home
mortgages market deposit accounts Savings and
loan Home mortgages, some Savings and loan
shares, associations consumer and business
transactions accounts,vari- debt ous time
deposits, money market deposit accounts
Mutual savings banks Home mortgages,
some Transactions accounts, consumer and
business savings accounts, various debt time
deposits, money market deposit accounts
36
Financial Intermediariesand Their Assets and
Liabilities
Financial Intermediary Assets Liabilities
Credit unions Consumer debt, long-term Credit
union shares, mortgage loans transactions
accounts Insurance companies Mortgages, stocks,
bonds, Insurance contracts, real
estate annuities, pension plans Pension and
retirement Stocks, bonds, mortgages, Pension
plans funds time deposits Money market
mutual Short-term credit instruments Fund shares
with limited funds such as large-bank
CDs, checking privileges Treasury bills, and
high- grade commercial paper
37
The Federal Reserve System
  • Organization of the Fed
  • Board of Governors
  • 12 Federal Reserve District Banks
  • Federal Open Market Committee (FOMC)
  • Depository institutions

38
Internet Activity
  • Click the Board button shown below to access
    the Board of Governors Web site.
  • For information on the Feds district banks click
    Districts.

Board
Districts
39
Organization of theFederal Reserve System
40
The Federal Reserve System
  • Board of Governors (7)
  • Appointed by the President with Senate
    confirmation
  • 14 year staggered permanent terms
  • Chair chosen by the President to a four year
    permanent term

41
The Federal Reserve System
42
Internet Exercise
  • Visit the Miller Web site to learn more about the
    Fed.

Miller
43
The Federal Reserve System
  • The Federal Open Market Committee (FOMC)
  • Determines monetary policy
  • Composed of
  • The Board of Governors
  • The President of the NY Federal Reserve Bank
  • The President of 4 of the remaining district
    banks, chosen on a rotating basis

44
The Federal Reserve System
  • Depository Institutions
  • 10,000 commercial banks
  • 4,000 member banks
  • 2,100 savings and loan associations
  • 12,000 credit unions
  • 500 mutual savings banks

45
The Federal Reserve System
  • Functions of the Fed
  • 1) Supplies the economy with fiduciary currency
  • 2) Provides a clearing mechanism for checks

46
How a Check Clears
47
The Federal Reserve System
  • Functions of the Fed
  • 3) Holds depository institutions reserves
  • 4) Acts as the governments fiscal agent
  • 5) Supervises member banks
  • 6) Acts as the lender of last resort
  • 7) Regulates the money supply

48
Interacting Withthe Internet
  • Click the Fed button below to learn more about
    the functions of the Fed.

Fed
49
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