Trade and Banking

NCSCOS 8.08/8.09

Functions of MoneyFunctions of Money1. medium of exchange:

trade money for goods and services

2. store of value: hold our wealth in the form of money until ready to use

3. measure of value: money is used to assign value to a good or service

Economic ExchangeEconomic Exchange

• coins and currency were not always used as money – bartering system

• barter is used in undeveloped countries

• developed countries moved to the exchange of coins & currency

• began by using precious metals to back up money supply

• demand began to exceed metals available

• governments issue legal tender

The Banking SystemThe Banking System

• offers a safe place to deposit money to save

• a source for borrowing when they need a loan

• as a reward banks pay an interest rate to borrow your money

• insure loans will be repaid with collateralcollateral

FDICFDIC

• Federal Deposit Insurance Corporation

• insures up to $250,000 of all accounts

• if the bank fails, the federal government will pay

Types of Financial InstitutionsTypes of Financial Institutions

1. Commercial Banks– offer full banking services to individuals and

businesses– large area of influence– most people have their checking and savings

accounts here

Types of Financial InstitutionsTypes of Financial Institutions

2. Savings and Loans Institutions– traditionally loaned money to people buying

homes– takes deposits and issue savings accounts in

return– today perform many of the same activities as

commercial banks

Types of Financial InstitutionsTypes of Financial Institutions

3. Credit Unions– work on a not-for-profit basis– open only to members of the group that

sponsors them– generally offer better rates on savings and

loans

Types of DepositsTypes of Deposits

• time deposits– leave money for a time, earns interest– certificate of deposits (CD)

• demand deposits– funds available immediately– earns little interest– withdraws money by check, ATM card, or

debit card– postpone spending with credit cards