MonEy mOneY moNEy
What does the FDIC do?
Protects your money from theft by backing it (ex. cash from bank is stolen, your account does not suffer)
Define "financial system"
the network of structures and mechanisms that allow the transfer of money between savers and borrowers
How do banks make a profit?
Interest from loans
List and explain the three (3) uses of money
medium of exchange (get stuff for it), unit of account (means to compare a g/s), store of value (doesn't lose value)
Define "investment" and explain how diversification is connected
Investment: redirecting resources from being consumed so they may create benefits in the future
Diversification spreads money across different investments, allowing for less risk by not putting all your eggs in one basket
List two (2) characteristics of the National Bank
Brought stability to financial situation in U.S., Hamilton's baby, Bank for banks, denied loans to small businesses/farmers
List and explain the three (3) sources of value
commodity money (livestock, precious metals, etc.), representative money (IOUs, specie, receipts, etc.), fiat money (legal tender, cash, etc.)
Define "prospectus" and "portfolio"
Prospectus: an investment report provided by a financial intermediary. Provides financial info.
Portfolio: collection of financial assets (including stocks, shares, savings accounts, mutual funds, etc.)
List and explain three (3) characteristics of the Free Banking Era
"Wildcat" banks (no gov. backing), bank run + panic (get your gold and leave), fraud (literally stealing), different currencies (no national currency)
Explain the difference between M1 and M2
M1: money available to be withdrawn
M2: "near money" --> includes M1 and savings accounts, money market mutual funds, etc.
Define "financial intermediaries" and list three (3) examples
an institution that helps channel funds from savers to borrowers
ex: banks, credit unions, finance companies, mutual funds, hedge funds, life insurance companies, pension funds
Explain how the Federal Reserve System fixed the issues from the previous banking eras
Gov. issued banks (backing in gov.), supervised by gov. (eliminates fraud), can lend to other banks (don't run out of $), national currency (std. for exchange)
List and explain the six (6) characteristics of money
portability (can be moved), durability (lasts), uniformity (looks the same), limited supply (controlled amount), divisibility (different denominations), acceptability (generally accepted)
Specify what three (3) specific financial intermediaries are/what they do
Banks, Credit Unions, Finance Companies: provide information surround bank accounts and credit scores
Mutual Fund: an organization that pools $ form multiple people and invests in other things (ie. stocks)
Hedge Fund: a private investment organization, similar to a mutual fund, that can often make huge profits for the investors, but with huge risks
Life Insurance Companies: provide compensation for the family of the deceased
Pension Fund: put away money to save for retirement
Explain the following terms: The gold std., specie, and demand deposit
Gold Standard: money is worth a value of gold
Specie: coins made of gold/silver
Demand Deposit: $ in a checking account