Question

Finance and Banking Module

Learning Outcomes:

1. Identify the functions & characteristics of money.

2. Summarize how the Federal Reserve System regulates money supply to keep economy healthy.
3. Describe the organizations involved and the services they supply in the banking and financial institution industry.
4. Explain how deposit insurance (FDIC) protects customers.
5. Discuss personal credit management.
6. Identify a firm’s short- and long-term financial needs.
7. Evaluate the advantages and disadvantages of equity financing.
8. Summarize the process of planning for financial management.
9. Explain how you can reduce investment risk with conservative investments and increase investment returns with speculative investments.
10. Discuss the 2007 Mortgage Crisis & 2008 Economic Crisis, and regulation that followed.              

Key Terms/Concepts to Learn:

demand deposit                      Federal Reserve System          credit unions

collateral                                 savings & loan associations    line of credit   

Commercial bank                    electronic funds transfer (EFT)

financial plan                          budget                                     federal funds rate

preferred stock                       prime interest rate                 initial public offering (IPO)

common stock                         investment banking                securities exchange comm. (SEC)

financial leverage                   corporate bond                       municipal bond          

Treasury & exchange Series EE bonds                                    consumer credit

blue-chip stock                        Dow Jones Industrial Average

stock dividend                         Standard & Poor’s 500 Stock Index

mutual fund                            pension fund                           Federal Dep. Insurance Corp. (FDIC)

venture capitalist                      Equity financing                        Dutch auction

discount rate                              NASDAQ                                     New York Stock Exchange (NYSE)

NCUA share insurance                                                                 social security administration

Money

3 Functions

6 Characteristics

Specializations/Minors in Finance Area of Study:

Finance

Answer 1

a) Functions:

1. Money is the one which replaced the barter system and allowed the trade for goods or services and acted as medium of exchange, money is the currency which brought the medium of exchange within the people instead of goods for goods or services for services

2. This allowed to save value and spend at a later date where saving value creates asset for the party who stored it

3. This allows to compare value of different things even internationally or nationally using different principles

4. This can be given as loan or taken as loan which can be repaid as per repayment terms from banks or people

Characteristics:

1. Fungible - replacable by another identical item

2. Durable - it gives same value at later date even though things value changes

3. Can be changed to different denominations

4. Generally acceptable by all

5. Cant be forged

6. Easy to use

b) Federal reserve system regulates money supply to keep economy healthy by influencing interest rates, printing money, adjusts banking reserves, buys and sells government bonds in open market. It prints money basing on the requirements and also by adjusting as per foreign exchange reserves, and regulate inflation by not giving overflow of money into the financial system. And there are many strategies which are followed by reserve system to regulate money and keep the economy intact. There are situations where the economy gets effected badly due to some macro economic factors but the reserve system introduces many policies to get the economy healthy

c) Central banks who regulates the money supply

Retail and commercial banks providing banking services to the people

Internet banks provides similar services like retail banks

Credit unions working for their members benefit

Investment banks who raise capital for businesses and government through issue of securities

Brokerage firms who deals as intermediaries in trades of securities

insurance companies who provides securities to the businesses and people to protect from financial losses

Mortgage companies provides loans by taking mortgage as security

d) FDIC means Federal Deposit Insurance Corporation which is one of the two deposit insurance corporations

This provides deposit insurance to the depositors. This is created by the congress to ensure stability in financial system. This insures deposits only for consumer protection. This directly supervises and examines more than 5000 banks for operational safety. It covers all deposit accounts like saving accounts and money market deposit accounts and deposit certificates, etc