Chapter 10: Money And Banking
Explain why, when exchange rates change, some groups benefit and others lose.
A strong dollar makes imports less expensive and foreign travel cheaper. A weak dollar makes imports more expensive and foreign travel more expensive.
Define money.
Anything that serves as a medium of exchange, unit of account, and a store of value.
Identify the types of financial institutions.
Commercial Banks, Saving and Loans Associations, Saving Banks, Credit Union, and Finance Companies.
Identify and explain the sources of money's value.
Commodity money consists of objects that have value in and of themselves and that are also used as money.Representative money makes use of objects that have value because the holder can exchange them for something else of value. Fiat Money Fiat money, or "legal tender" has value because the government has decreed that it is an acceptable means to pay debts.
Identify and explain the six characteristics of money.
Durability- Objects used as money must withstand the physical wear and tear that comes with being used over and over again. Portability- People need to be able to take money with them as they go about their daily business. Divisibility- To be used, money must be easily divided into smaller denominations, or units of value. Uniformity- Any two units of money must be uniform in terms of what they will buy. Limited Supply- The Federal Reserve System controls the supply of money in circulation, which gives them the power to control how much money is available. Acceptability- Everyone in an economy must be able to exchange the objects that serve as money for goods and services.
Know what FDIC stands for, why it was created and what it does.
FDIC stands for Federal Deposit Insurance Corporation. It is independent U.S. government corporation created under authority of the Banking Act of 1933 with the responsibility to insure bank deposits in eligible banks against loss in the event of a bank failure and to regulate certain banking
Identify the functions of financial institutions.
Functions of financial institutions are saving money, loans, mortgages, credit cards, ATM's, and bill paying.
Identify the parts of the Federal Reserve.
Member banks, Federal Reserve Board, short-term loans, and Federal Reserve Notes.
Identify and explain the three functions or uses of money.
Money serves as a medium of exchange, which is anything that is used to determine value during the exchange of goods and services. Money provides a means for comparing the values of goods and services. Money also keeps its value if you decide to hold on to it instead of spending it.
Identify the source of value for America's currency.
Since 1934 the U.S. has been on this standard, it is nonconvertible meaning it cannot be converted into gold or silver.
Explain why the Federal Reserve was created and what it does.
The Federal Reserve was initially created to prevent banking crisis from happening again in the future. The Federal Reserve System serves as the nation's first true central bank.
Define exchange rate.
The value of a foreign nation's currency in terms of the home nation's currency.