Banking Systems Chapter 3

Aggregate Measures
The measure of the money supply used to estimate its size.
Commodity Money
A monetary system based on some item of value, for example, gold or precious stones.
Discount Rate
The interest rate that the Federal Reserve sets and charges for loans to member banks.
Excess Reserves
The resources a bank uses to create money through its business transactions.
Federal Funds Rate
The amount of interest charged for short-term, interbank loans
Fiat Money
Money that is deemed leagl tender by the government, and it is not based on or convertible into a commodity
Fractional-Reserve System
A system in which goldsmiths needed to keep back, or reserve only a fraction of the total gold that had been deposited.
A measure of how quickly things may be converted to something of value like cash
Money Supply
Liquid Asset held by banks and individuals
Mulitiplier Effect
A Phenomenon in which new deposits go out to customers as loans and create more deposits, thus expanding the amount of money in the fractional-reserve system
Primary Reserves
Cash on hand, deposits that may be due from other banks, and the percentage required by the Federal Reserve System, either held in the vault or on deposit in the District Reserve Bank for the are
Prime Rate
The rate that banks charge their best and most reliable customers
Secondary Reserves
Securities the bank purchases from the Federal government, usually in the form of government securities