* * * Understanding Money, Financial Institutions, and the Federal Reserve * CHAPTER ** 20 Nickels * McHugh McGraw-Hill/Irwin Understanding Business, 8e * McHugh 1-1 20-1 © 2008 The McGraw-Hill Companies, Inc., All Rights * * * 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 * * * Characteristics Of A Good Money System • Portability • Divisibility • Stability • Durability • Uniqueness 20-3 * * *• • • • 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 * * * $ Bills and Coins Source: U.S Department of Treasury, FY 2005 Performance and Accountability Report 20-5 * * * The Money Supply Deman = Total d M1 Deposit s *SA = Seasonally Adjusted Currenc y + + Time Deposits & Money Market Accts = Total M2 *SA 20-6 * * * Life Span of Currency Source: Bureau of Engraving and Printing 20-7 * * * Federal Reserve Structure Board of Governors Advisory Councils Federal Open Market Committee Federal Reserve Banks Member Banks 20-8 * * * Regional Reserve Banks 20-9 * * * Federal Reserve • Buys/Sells Foreign Currency • Regulates Credit • Supervises Banks • Collects Data on Money Supply/Economic Activities • Processes Checks 20-10 * * * 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 * * * Federal Reserve System • History • Land Banks • Central Bank • Great Depression • Structure 20-13 * * * 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 * * * United States’ Largest Banks Assets In Billions Source: Infoplease.com 20-15 * * * Services Available at Most Commercial Banks 20-16 * * * 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 * * * Number of Credit Unions Source:www.ncua.gov 20-18 * * * Regulation of Financial Institutions • Federal Reserve Board • FDIC • SAIF(FSLIC) • NCUA 20-19 * * * Future of Banking • Repeal of Glass-Steagall (1933) • Gramm-Leach-Bliley (1999) • One-Stop Shopping 20-20 * * * Number of Households That Bank Online In Millions Source: USA Today, “Snapshots”, and CNNMoney.com 20-21 * * * 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 * * * Electronic Banking Trends in the U.S • Internet • Electronic Funds Transfers (EFTs) • Check Conversion • Debit Card- Teenagers • Smart Card • Automatic Transfers 20-23 * * * When Will The U.S Become Cashless? Source: New Designs for Your Money, U.S Department of Treasury 20-24 * * * International Banking • Currency or Money Exchange • Letter of Credit • Banker’s Acceptance • World Bank • IMF 20-25 * * * World’s Largest Banks In Billions Source: USA Today, “Snapshots” 20-26 ... profit this year by $45 million Source:www.usatoday.com, May 10, 200 6 20- 4 * * * $ Bills and Coins Source: U.S Department of Treasury, FY 200 5 Performance and Accountability Report 20- 5 * * * The... www.ots.treas.gov, August 23, 200 6 20- 17 * * * Number of Credit Unions Source:www.ncua.gov 20- 18 * * * Regulation of Financial Institutions • Federal Reserve Board • FDIC • SAIF(FSLIC) • NCUA 20- 19 * * * Future... Brokerage Firms Finance Companies 20- 14 * * * United States’ Largest Banks Assets In Billions Source: Infoplease.com 20- 15 * * * Services Available at Most Commercial Banks 20- 16 * * * Thrift Highlights