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Banking System

Terms in this set (60)

What is money
A medium of exchange. Anything that can be used to settle debt. Easily exchangeable and readily accepted in the marketplace
what are the functions of money(SA)
1. medium of exchange
2. standard of value
3. store of value
medium of exchange(SA)
anything that is able to be exchanged/traded
standard of value(SA)
everyone accepts the same value of what is being used to be exchanged
store of value(SA)
has to maintain its value over time
cahracteristics of money(SA)
1. durability
2.portability
3.divisibility
4.uniformity
5. acceptability
6. stability in value
7.scarcity
durability(SA)
money being transferred from one person to another. Currency has to last a long time abut when it needs to be replaced new currency is produced and the previous destroyed
divisibility(SA)
US many is divided into denominations of rease in completing transactions. The highest denomination is $100 and lowest is $1 but it is easily divisible that's why there are 50cents, 10cents, etc
stability in value
money has to have a stability of value you only spend $5 that is of that value. You trust that the money will be used again so you will accept it in exchange for the goods
portability
easily portable-you can carry it from place to place
acceptability
we accept money because we know it is exchangeable for real goods and services
uniformity(SA)
all looks the came in the country
scarcity(SA)
money must be scare to have any value
what are the types of money
-comodity
-representative
-fiat
commodity money
-something that has value for what it is
*gold, silver, ruby, etc
-coins
-not really used today
representative money
-paper money that can be used to exchange goods
-a receipt promises to pay a certain amount of gold or silver
fait money
-money that has value because the gov issued it
-has no intrinsic value
-cant be exchanged for gold or silver
why do people save money(SA)
-for major purchases=car, house
-to pay annual or semiannual bills=property tax,insurrance
-unexpected expenses=medical treatment, home repairs
-for major long-term expenses-collage=college and retirement
-to amass wealth or leave an inheritance=to have money and to leave money to your children
what is a savings account
a demand deposit account designed for the accumulation of money in a safe place for future use
what does it mean for funds to be liquid
you can withdraw you money at any point in time without penalty
what is interest
-a percentage of the amount on deposit
-banks generally pay interest to encourage you to keep your money in the bank
-APR-Annual Percentage Rate
what is a principle
the amount of money set aside on which the interest is paid
what is the difference between simple interesting compound interest
simple-interest is computed on the principal once during the time period
compound-interest is computed on both the principal and previously earned interest
why you should put money in bank
-security
*can't be lost due to fire or theft
*protected by the FDIC
-interest
*banks pay you for the use of your money
*interest rates vary from bank to bank even account to account
savings accounts
-you can move money in your savings account into other accounts
-you can have it transferred to an investment account tor can withdraw it
kinds of savings accounts
-passbook savings account
-statement savings account
-holiday savings account
passbook savings account
-traditional savings accounts
-teller records each deposit or withdraw as well as interest earned in the booklet
-it is your only record of transactions
-you will be charged for a new book if lost
statement savings account
-becoming more common
-all transactions are recorded on a monthly statement
-statements are mailed to you monthly
-nothing to loose
advantages of savings accounts
-you can get your money out at any time high liquidity
-can reduce charges to your checking account
-insured by FDIC up to $200,00
disadvantages of savings accounts
-other kinds of accounts pay higher interest
-fees,minimum balance or service charges, can be higher than interest earned
What are other ways to save; money market accounts
-banks combine several people's deposits together and invest in stocks and bonds etc
-larger amount o money to invest
-usually a higher rate of interest
-limited number of checks per month
-insured by FDIC
time deposits
-certificate of deposits
-savings bonds
certificate deposit
*and amount if money(principal) is deposited for a specific time period(term) about 1 month to 5 yrs
*it ends, matures, on its date of maturity
benefits of certificate of deposits
-usually a higher rate of interest
-interest rate locked in for entire term
-forces us to save
-insured by FDIC
negatives of certificate of deposits
-liquidity-pentalty for withdrawal
-your money is tied up for a specific length of time
-interest rate locked in for entire term
-you can't add to the principal
what happens on the maturity for a CD
-1 week on either side of the date of maturity you can:
-do nothing-roll over
-cash it in-get your money
-add to the principal
savings bond
-purchase a bond for less than face value
-redeem them for face value upon maturity
-If you hold the bond longer it continues to earn interest
-safe-guarenteed by the federal government
-low liquidity
annuity
a fixed amount set aside on a regular basis
rule 72
a quick formula for computing ohs long it will take to double money invested at a given interest rate
eqn. 2y=72/annual percentage rate (y=amount of money you have)
other than saving accounts what are 4 options for saving money
-money market accounts
-certificate of deposit
-US Savings bonds
-Individual Retirement Accounts
individual retirement accounts
+An IRA allows individuals to deposit money into an account during their working years and to delay paying taxes on the money and the interest earned until its withdrawn after retirement
-money is tied up until retired
checking account
a demand deposit account at a bank at which checks are drawn
check
written order to a bank to pay a stated amount to the person or business named on the face of the check-legal contract between you and the bank
canceled check
one that has been processed also serves as proof of payment for bills or purchases
what is a check register
a tool used to track checking account transactions
deposit
many added to checking or savings account
withdrawal
taking money from your account
How do you put money into your checking account
-endorsement
-electronic funds transfer
endorsement
a signature with or without instructions written on the bank of a check
EFT
use of a computer based system to move money from the drawers account to the payee's account
cashiers check
a check issued against the banks funds
certified check
a personal check that the bank guarantees
stop payment
an instruction to the bank not to honor a check that has been issued or lost
ATMs
automated teller machines-they are for getting money out of accounts
Bank Cards
they have special features and are electronically coded, allowing you to use them for purchases, cash advances, and deposits
Overdraft Protection
if you write a check or make a withdraw from your account and the account doesn't have enough money to cover the transaction, the bank will cover the shortage
Internet Banking
Accessing and managing your account online
Safe Deposit Boxes
A secure container located in a bank vault
NSF Fees
one particularly high cost of banking is that of covering a bad check
bounced check
a check that is not honored by a bank and is returned to the payee's bank due to non sufficient funds
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