51 terms

Understanding Business Chapter 20

Money, Financial Institutions, and the Federal Reserve
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Terms in this set (...)

The Federal Reserve (or the Fed)
the organization in charge of money in the United States
Money
anything that people generally accept as payment for goods and services
Barter
the direct trading of goods or services for other goods or services
Barter Exchange
a system where you can put goods or services into the system and get trade credits for other goods and services that you need (finds people for you to barter with)
5 Standards for a Useful Form of Money
•Portability
•Divisibility: different-sized coins and bills represent different values
•Stability
•Durability
•Uniqueness: so it is hard to counterfeit
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Money Supply
the amount of money the Federal Reserve Bank makes available for people to buy goods and services
M-1
money that can be accessed quickly and easily (coins and paper money, checks, traveler's checks, etc.)
M-2
money included in M-1 plus money that may take a little more time to obtain (savings accounts, money market accounts, mutual funds, certifications of deposit, etc.)
M-3
M-2 plus big deposits like institutional money market funds
QE 1 and QE 2
literally mean quantitative easing one and two, but the real meaning is that the Fed is creating more money because it believes that money is needed to get the economy moving again
If governments were to generate twice as much money available, but still the same amount of goods of services prices would go up because more people would try to buy goods and services with their money and bid up the price to get what they wanted
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Falling Dollar Value
the amount of goods and services you can buy with a dollar decrease
Rising Dollar Value
the amount of goods and services you can buy with a dollar increase
What makes a U.S. dollar weak (falling value) or strong (rising value) is the position of the U.S. economy relative to other economies
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The Federal Reserve System consists of 5 major parts:
(1) The board of governors; (2) the Federal Open Market Committee (FOMC); (3) 12 Federal Reserve Banks (the board of governors administers and supervises this); (4) three advisory councils; and (5) the member banks of the system
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Discount Rate
the interest rate that the Fed lends money to member banks
Reserve Requirement
a percentage of commercial banks' checking and savings accounts that must be physically kept in the bank
Open-Market Operations
the buying and selling of U.S. government bonds by the Fed with the goal of regulating the money supply
Discount Rate
the interest rate that the Fed charges for loans to member banks
Federal Funds Rate
the interest rate banks charge each other
Continental Money
the first paper money printed in the U.S.
Land Banks
established to lend money to farmers
Central Bank
a bank at which other banks could keep their funds and borrow funds if needed
Under the Federal Reserve Act of 1913, all federally chartered banks had to join the Federal Reserve
•Became the banker's bank
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Commercial Bank
a profit-seeking organization that receives deposits from individuals and corporations in the form of checking and savings accounts and then uses some of these funds to make loans
Commercial banks have two types of customers - depositors and borrowers (equally responsible for both)
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Demand Deposit
the technical name for a checking account; the money in a demand deposit can be withdrawn anytime on demand form the depositor
Time Deposit
the technical name for a savings account; the bank can require prior notice before the owner withdraws money form a time deposit
Certificate of Deposit (D)
a time-deposit (savings) account that earns interest to be delivered at the end of the certificate's maturity date
Credit Unions
nonprofit, member-owned financial cooperatives that offer the full variety of banking services to their members - interest-bearing checking accounts at relatively high rates, short-term loans at relatively low rates, financial counseling, life insurance policies, and a limited number of home mortgage loans
Nonbanks
financial organizations that accept no deposits but offer many of the services provided by regular banks (pension funds, insurance companies, commercial finance companies, consumer finance companies, brokerage houses, and corporate financial services - like GE Capital)
Pension Funds
amounts of money put aside by corporations, nonprofit organizations, or unions to cover part of the financial needs of members when they retire
The Federal Deposit Corporation (FDIC), Savings Association Insurance Fund (SAIF), and the National Credit Union Administration (NCUA) all deposit in individual accounts up to a certain amount (protect investors from ever again being completely wiped out during an economic downturn)
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Federal Deposit Insurance Corporation (FDIC)
an independent agency of the U.S. government that insures bank deposits
Savings Association Insurance Fund (SAIF)
the part of the FDIC that insures holders of accounts in savings and loan associations
National Credit Union Administration (NCUA)
provides up to $250,000 coverage per individual depositor per institution
Electronic Fund Transfer (EFT)
a computerized system that electronically performs financial transactions such as making purchases, paying bills, and receiving paychecks
Debit Card
an electronic funds transfer tool that serves the same function as checks: it withdraws funds from a checking account
Payroll Debit Cards
an efficient way for some firms to pay their workers and an alternative to cash for those who don't qualify for a credit or debit card
Smart Card
an electronic funds transfer tool that is a combination credit card, phone card, driver's license card, and more
Direct Payment
a preauthorized electronic payment
Letter of Credit
a promise by the bank to pay the seller a given amount if certain conditions are met
Electronic exchange of money is the most efficient way to transfer funds
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if someone steals your credit card you are only liable for a certain amount, but you are liable for everything when someone steals your debit card
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Direct Deposit
a credit made directly to a checking or savings account in place of a paycheck
Some Smart Cards have embedded radio-frequency identification (RFID) chips that make it possible to enter buildings and secure areas and to buy gas and other items with the swipe of the card
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Banker's Acceptance
a promise that the bank will pay some specified amount at a particular time
Currency or Money Exchange
when U.S. dollars are exchanged for either Euros or other foreign currency
World Bank
the bank primarily responsible for financing economic development; also known as the International Bank for Reconstruction and Development
International Monetary Fund (IMF)
organization that assists the smooth flow of money among nations
There are several ways to refer to the money supply; they're called M-1, M-1, and M-3
oThe M stands for money and the 1, 2, and 3
stand for different definitions of the money
supply
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