Page 136 - Bus101FlipBook

8-2 Money, Banking & Financial Institutions [CH 8

Chapter Overview
For every industry and economy, money is the lubricant that greases the cogs that
keep them healthy. Whether it be for economic growth and expansion, progress or
recession, employment or unemployment, money affects what happens. Everyone
recognizes the need for adequate funds to finance business enterprises and carry on
management plans.
Money is an important commodity to all of us; it reacts to the marketplace because
it has a supply and demand, and even an equilibrium price that targets the price of
money—the cost of borrowing, expressed as interest paid and interest rate. In
analyzing the money characteristics, functions, and types, it is useful to begin by
defining it:
Money is anything generally accepted as a means of paying
for goods and services and a measure of value.
money From this definition it is easy to recognizes the psychological influences of money.
Anything generally The word "anything" is important because money can be a goat, cow, land, equipment
accepted as a means of
paying for goods and and the coins and currency in your pocket. It has a measure of value that is agreed
services. upon and may be used in transactions of exchange.
Ask anyone today to define money and he will probably reply that “it is the coins

and paper bills in my pocket and wallet, and what I currently have in my checking
account.” Of course, everyone will agree to this description, as it is commonly
understood as money. Money is one of the most fascinating subjects for both
individuals and businesses. King Solomon of old stated that “Money answereth all
things,” and it may be added that money also brings on many responsibilities.
Everyone seems to need it:
Money bewitches people. They fret for it, and they sweat for it. They devise most
ingenious ways to get it, and most ingenious ways to get rid of it. Money is the only
commodity that is good for nothing but to be gotten rid of. It will notice you, clothe
you, shelter you, or amuse you unless you spend it or invest it. It imparts value only in
parting. People will do almost anything for money, and money will do almost anything
for people. Money is a captivating, circulating, masquerading puzzle (Federal Reserve
Bank of Philadelphia, “Creeping Inflation,” Business Review, August 1957, p. 3).
Enough with the romance! The wise man recognizes that money is a tool and in
this chapter you will explore money and banking. A discussion of money’s
characteristics, functions, and types will be offered. The operations of commercial
banks and other financial institutions will be discussed, and a brief examination of the
methods used by the Federal Reserve System in regulating the U.S. financial system
by controlling the money supply will be considered. This chapter discusses the Federal
Reserve System's activities in check processing and in protecting depositors' funds by
providing insurance and evaluating banking practices. The fundamental changes that
have resulted from financial deregulation are assessed, and such current developments
as the growth of electronic funds transfer systems and the development of the financial

Copyrighted Material