Understanding Money and Banking

Define money and identify the different forms of money in the nation's money supply.

     Any item that is portable, divisible, durable, and stable and that serves as a medium of exchange, a store of value, and a unit of account can be considered money. The nation's money supply includes currency (bills and coins), demand deposits, checkable deposits time deposits, money market funds, and savings deposits.

Discuss the different kinds of financial institutions that make up the U.S. financial system and the services they offer.

     The U.S. financial system includes state and national commercial banks, savings and loan associations, mutual savings banks, credit unions, and nondeposit institutions. These institutions offer a variety of services, including pension services, trust services, international services, financial advice, brokerage services, and convenient electronic funds transfer services, including automated teller machines.

Explain now banks create money and by whom they are regulated.

     By lending out part of their deposits, banks create money. The overall supply of money however, is governed by several Federal agencies. The Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision the Resolution Trust Corporation, and the Federal Reserve System all regulate the bank&-related financial system.

Describe the Federal Reserve System's functions and the tools it uses to control the money supply.

     The Federal Reserve System is the nation's central bank. It serves as the government's bank and the "bankers bank," regulates many banking activities, and controls the money supply. To control the money supply, the Fed uses reserve requirements, the discount rate, open&-market operations, and selective credit controls.

Discuss five ways in which the financial market is changing.

     Many changes have affected the money and banking system in recent years. Deregulation of banking institutions and the rise of interstate banking have increased competition. Foreign banks maintain a significant presence in the United States to aid international trade. Electronic technologies and financial supermarkets offer new conveniences to customers.