Vocabulary
Currency- Coins and paper bills used to purchase goods/services.
Certificate of Deposit- Earns a higher interest rate than a savings/checking account but you are unable to have access to your money for a set period of time
Stocks- Ownership shares of a corporation that can be bought and sold
Monetary Policy- Conducted by “The Fed”, it is the increasing or decreasing of the money supply.
Fed- The national bank of the United States.
Why does money have value?
We are absolutely certain that someone else will accept its value as well. Medium of Exchange
Money can be exchanged for any good or service
Functions of Money
Medium of ExchangeBarter System
People had to trade goods or services they possessed for goods or services they wanted
Very inconvenient This caused the creation of
money to use for a medium of exchange
Measure of Value Money assigns a value to a
good or service and can then be exchanged in the market place
Types of Money
Coins: Metallic forms of money such as pennies, nickels, etc.
Currency: Both (coins and paper)
Spending, Borrowing, and Investment
Spending Money Checking Accounts
Called Demand Deposits because your money is available “on demand”
Used by writing a check or using a debit card
Credit Credit Cards act as a loan The purchaser is deferring
payment until a later date and must pay interest on the purchase
Certificate of Deposit (CD) Called Time Deposits because
you only have access to your money after a set amount of time
Earn a higher interest rate than a checking/savings account
Types of financial institutions
Demand Deposit and Time Deposit Accounts are usually held at either a commercial bank, credit union or savings and loan
1. Commercial Banks - Receive deposits of money, extend
credit, and provide loans- Banks make money on the interest
they collect from loans- Collateral
- Requirement to obtain a loan, collateral is anything of value that can be used to cover the cost of the loan if you don’t pay
2. Savings and Loans - Traditionally loaned money to people
buying homes
3. Credit Unions Open only to workers of a certain
group Can offer higher interest rates to its
customers
Stocks, Bonds, and Mutual Funds
Stocks Shares in a company that
an individual purchases giving that person part ownership
Can be very rewarding and very risky AFLAC and ENRON
Mutual Funds Helps minimize risk Pool money from many
investors to buy a range of stocks
Lower rate of return
Insurance
Insurance When you buy a stock
you are accepting the risk. Insurance involves transferring risk to others
Paying money to an insurance company so if what you value is lost or damaged the insurance company will pay for it
Life Insurance Provides money to one’s family
if they die Term Life Insurance Whole Life Insurance
Health/Medical Insurance Covers health and medical
expenses Liability Insurance
Provides protection from claims arising from injuries or damage to other people/property Homeowner, auto insurance
Comprehensive Liability Covers businesses from wide
range of catastrophes
Businesses and Investment
Capital Investment Investing profits in
capital to make the company more efficient
Pension Funds Mutual funds set up by
employers to allow employees to save for retirement
Employees pay into the fund and gain interest
Is Your Money Safe?
U.S. has one of the safest financial systems in the world.
FDIC- Federal Deposit Insurance Commission - Insures accounts of
up to $100,000- Created after Great
Depression
The Federal Reserve
Functions:1. Act as the gov’t
bank2. Conducting
Monetary Policy Controlling the supply
of money and the cost of borrowing money
Changing the Money Supply
The FED does this in 3 ways:1. Reserve Requirement2. Discount Rate3. Open Market
Operations
reflection
What is “medium of exchange”? Why is the Barter system inconvenient? Why is a checking account called a “demand deposit”? What does a credit card company offer? Why might someone choose to put money in a Certificate of
Deposit? Summarize the differences between a Commercial Bank,
Savings and Loans, and Credit Unions. Why might someone choose to invest in a Mutual Fund? What is the purpose of buying insurance? What is the purpose of the FDIC? What role does the Federal Reserve play in our economy?