Beruflich Dokumente
Kultur Dokumente
By Alan J. Carper
Bob Jones University Press. 1998
Chapter 10
“Money & Banking”
Objectives:
• Explain the definitions of money used in the United States.
• Describe the properties of money.
• List the functions of money & the desirable characteristics of
money
• Identify the different kinds of money
• Name the four designations given to measurements of the
money supply
• Describe the banking activity of goldsmiths that led to an
expansion of the money supply
• Describe a commercial bank
• Describe the existing dual banking system
• List the functions of commercial banks
• Explain the concept of near-monies.
Biblical Integration:
• We are to be good stewards of the money God
has given unto us. (Luke 16:11)
(Carper, 129)
Introduction
• The properties of money, the functions of money the
definitions of money are important concepts for you to
understand.
• Money has existed for a long time, and a wide range of
commodities have served as money in different
countries and at different times.
• Before money, economies used a barter system.
– The principle problem with a barter system is the double
coincidence of wants required for success.
• Double coincidence of wants means that you must find someone
who wants what you want to trade and has what you want!
• Time-consuming and limiting!
Money
• Properties of any commodity used as money:
– Portability
– Uniformity
– Durability
– Stability in value
– Acceptability
Salt - - -
Large stone wheels - + -
Cattle - - -
Gold + + +
Copper coins + + +
Beaver pelts - - -
Personal checks + + +
Savings account passbook - - -
Prepaid phone card ? + +
Debt card + + +
Credit card + - +
Cigarettes - - -
Playing cards - - -
Bushels of wheat - - -
$1 bill + + +
$100 bill + + +
My top six items: Gold, copper coins, personal checks, debit card, $1 bill and $100 bill
2. After you finish the evaluation in Question 1, rate the
various items in the table below.
– Evaluate how well they meet the characteristics of money.
– Again, if an item seems to fit a characteristic, use a “+”
sign;
– If the item does not seem to fit a characteristic, use a “-”
sign;
– If there is a difference of opinion or if you are uncertain,
use a “?”.
– The item with the most “+” signs would best fit the
characteristics of money.
– In the space below the table, list your six top items.
Item Portability Uniformity Acceptability Durability Stability in Value
Salt + + - + -
Large stone wheels - - - + +
Cattle - - - ? -
Gold
+ + ? + -
Copper coins + + ? + -
Beaver pelts + - - + ?
Personal checks + + ? + +
Savings account passbook + + - - +
Prepaid phone card + ? ? - +
Debt card + + + + +
Credit card + + + + +
Cigarettes + - - - -
Playing cards + - - - -
Bushels of wheat - - - - -
$1 bill + + + + +
$100 bill + + + + +
My top six items: Gold, copper coins, personal checks, debit card, $1 bill and $100 bill
3. Why might factors such as ease of storage,
difficulty in counterfeiting and security of
electronic transfer of funds also be
characteristics that you might use in evaluating
money?
For an item to be a good medium of exchange, you
would want to minimize the costs of holding or
storing it. Counterfeiting and security affect the
item’s underlying value and might affect
acceptability.
Check
(Carper, 136)
Negotiable Check:
(1) In writing
(2) Signed by the maker
(3) Payable to the bearer or to the order of a
specific person
(4) Ordering the bank to pay a specified sum
of money
(5) Bearing a date no older than six months.
(Carper, 136)
Checks
• “Many corporations will use a stamp signature
instead of signing each individual check.”
• Commercial Banks
– A commercial bank is a firm that is licensed by the
Comptroller of the Currency in the U.S. Treasury (or
by a state agency) to accept deposits and make loans.
– About 7,400 commercial banks operate in the United
States in 2006.
– Because of mergers, this number is down from 13,000
a few years ago.
THE BANKING SYSTEM
Types of Deposits
– A commercial bank accepts three types of
deposits:
• Checkable deposits
• Savings deposits
• Time deposits
THE BANKING SYSTEM
Profit and Prudence: A Balancing Act
– The goal of a commercial bank is to maximize the
long-term wealth of its stockholders.
– To achieve this goal, a bank must be prudent in the
way it uses its depositors’ funds and balance
security for the depositors against profit for its
stockholders.
THE BANKING SYSTEM
Cash Assets
–A bank’s cash assets consist of its reserves and
funds that are due from other banks as payments for
checks that are being cleared.
–A bank’s reserves consist of currency in the bank’s
vaults plus the balance on its reserve account at a
Federal Reserve Bank.
–The Fed requires the banks and other financial
institutions to hold a minimum percentage of
deposits as reserves, called the required reserve
ratio.
THE BANKING SYSTEM
Interbank Loans
–When banks have excess reserves, they can lend
them to other banks that are short of reserves in an
interbank loans market.
–The interbank loans market is called federal funds
market and the interest rate on interbank loans is the
federal funds rate.
–The Fed’s policy actions target the federal funds
rate.
THE BANKING SYSTEM
Securities and Loans
–Securities held by banks are bonds issued by the
U.S. government and by other large, safe,
organizations.
–A bank earns a moderate interest rate on securities,
but it can sell them quickly if it needs cash.
–Loans are the funds that banks provide to
businesses and individuals and include outstanding
credit card balances.
–Loans earn the highest interest rate but cannot be
called in before the agreed date.
THE BANKING SYSTEM
Bank Deposits and Assets: The Relative
Magnitudes
– In 2007, checkable deposits at commercial banks
in the United States, included in M1, are about 7
percent of total commercial bank deposits.
– The other 63 percent of deposits are savings
deposits and small time deposits, which are part of
M2.
Financial Institutions
• Functions include:
– (1) Accepting Deposits. (Primary source of
money for loans)
– (2) Extending Loans
(3) Provision of Miscellaneous Services
1. Obtain a Charter
- Apply to the “Comptroller of the Currency”
(federal charter) or state treasurer’s office (state
charter)
2. Raise Financial Capital
- selling shares
3. Buying Equipment
4. Accepting Deposits
(B) What are the effects if the money supply grows too rapidly?
If the money supply is growing too quickly, it could lead to inflation.
3. Name a type of money that serves primarily as a medium of
exchange.
Currency, coin, debit cards or checkable deposits
4. Name a type of money that serves primarily as a store of value.
Savings account or money market mutual fund account.
M1 = ____________________________
850 + 200 = 1,050
1,050 + 1,745 + 302 = 3, 097
M2 = ____________________________
3,097 + 800 + 1,210 = 5,107
M3 = ____________________________
Works Cited