Banking and Financial Institutions Lesson

receive their money from other sources, like mortgage, finance, and insurance companies.

​Nondepository Institutions

are the ones who receive their money from customer deposits, like in the form of a bank. Their profit is largely generated through the interest paid on loans made to customers.

​Depository Institutions

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Objectives

• Explain the concept of money.
• Identify the responsibilities of the Federal Reserve.
• Discuss the importance of financial exchange.

Multiple Choice

What is interest?

• Price paid for using someone else's money
• Percentage of people interested in using banks
• How much money the bank pays to keep running
• The amount of money the bank has

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Money

• Money is anything of value that is accepted in return

for goods or services; currency
– Banknote is a document guaranteeing payment of a

specific amount of money; payer named on document

– Security is a financial investment issued by a

corporation, government, or other organization

– Government bond is a security that pays interest over

terms of ten to thirty years

– Treasury note is a security that pays interest over

terms ranging from two to ten years

– Treasury bill is a security that matures in a year or less

Multiple Choice

What is credit?

• Borrowed money that you have to pay back with interest
• Money you do not need to pay back
• Money you've earned for having good credit that isn't paid back
• Borrowed money that isn't paid with interest

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Money

• Functions of money in our economy:

– Medium of exchange: Money is used in exchange for

goods and services needed by individuals, businesses,
and governments

– Unit of value: Money is a common measure of the

worth or price of a good or service

– Store of value: Money can be saved and used at a

later date

Multiple Choice

Which of these services do depository institutions offer?

• Financial advice
• Free money
• Ability to take more money than you have without penalty

Multiple Choice

Which of the following is a FUNCTION of Money?

• Store of value

• Unit of value

• Medium of exchange

• All of the above

Multiple Choice

Which of these fees would an institution NOT charge you?

• Overdraft fee
• ATM fee
• Minimum balance fee
• Fee for using money

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Money

• Properties of money:

– Stable: Maintain its value over time
– Recognized: Authentic money immediately recognizable
– Divisible: Divide money into smaller units
– Portable: People must be able to carry money
– Durable: Made of a strong and lasting material

Multiple Choice

Depository institutions that offer many banking services and are owned by their customers

• commercial bank
• credit union
• mobile banking
• online banking

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Federal Reserve

• Federal Reserve System is the central bank of

United States
– Divided into 12 districts
– Responsible for monetary system.

• Monetary system is the mechanism a nation uses to

provide and manage money for itself

Commercial banks

–company that accepts deposits that it uses to make loans, earn profits, pay interest to depositors, and pay dividends to owners.

Each bank is receiving big portion of income from interest on loans payed by borrowers.

Banks are giving the lowest rate or prime rate to their creditworthy customers.

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Federal Reserve

Savings and Loan Association (S&L)

-financial institution accepting deposits and making loans primarily for home mortgages.

Most S&L associations were created to encourage saving habits and provide financing for homes.

Mutual Savings Bank 

–financial institution where all depositors are considered like owners of the bank, sharing profits. All profits are divided proportionately among depositors.

Credit Union 

nonprofit, cooperative financial institution owned and run by its members, usually group of employees, members of a particular organization or people in one community.

Reason of credit unions is to provide members save place to save money and borrow at reasonable rate. Members investing in order to make loan to one another.

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Financial Exchange

• Financial exchange is the process of transferring

money from one individual or organization to another

• Basic types of financial exchange:

– Cash includes paper money and coins
– Credit card is a plastic card that allows the holder to

make credit purchases up to an authorized amount

– Bank-issued debit card allows customers to pay for

purchases directly from their checking account

– Electronic funds transfer (EFT) is a transfer of money

from one bank account to another

Multiple Choice

Which of the following reasons is the primary motivator for a commercial bank to acquire new depositors?

• A new deposit account will make more funds available to pay the bank's employees

• A new deposit account will make more funds available to facilitate brokerage transactions.

• A new deposit account will make more funds available to give out in loans.

• A new deposit account will make more funds available to give out in dividends to its investors.

Multiple Choice

____ allows customers to pay for purchases directly from their checking account.

• Cash

• Electronic funds transfer

• Credit cards

• Debit cards

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Legal Responsibilities of
Financial Exchange

• Laws and regulations protect buyers and sellers
• Legal responsibilities of financial exchange include

privacy, disclosure, fraud, consumer rights, and
interest rates

• Terms of financial transactions determined by state

and federal laws

Multiple Choice

Digital banks are known to be ________________.

• expensive

• affordable

• far away

• on every corner

Multiple Choice

I can visit a digital only bank.

• True

• False

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Financial Institutions

• Financial institution is any organization that provides

services related to money
– Depository institutions
– Nondepository institutions

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Financial Institutions

• Depository institution is a financial institution that

accepts money from customers and deposits it into
the customer’s account. A deposit is money placed
into an account
– Commercial banks are largest category of deposit

institution

– Credit union is a nonprofit financial institution that is

privately owned and provides banking services for its
members

– Savings and loan institution is a financial institution

that offers savings and loan services

Non-deposit Institutions

Pension Fund 

–non deposit pool of funds managed to provide retirement income for its members

Insurance Company 

–non deposit institution that invests funds in stock, real estate and other asset. Funds are collected from premiums charged for insurance coverage.

Multiple Choice

True or False: Credit unions and savings and loan institutions are both examples of depository institutions.

• True

• False

•Finance Company 

–non deposit institution that specializes in making loans to businesses and consumers

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Financial Institutions

• Nondepository institution is a financial institution

that does not accept deposits
– Insurance companies are for-profit businesses that sell

insurance products

– Securities firm is a financial institution that is involved

in trading securities in financial markets

– Investment bank is a financial institution that provides

services for businesses

– Finance company is a financial institution that makes

money by issuing loans; loan company

•Securities Investment Dealer (Broker)

–financial institution that buys and sells stocks and bonds both for investors and for its own accounts

Multiple Choice

A ______ institution accepts money from customers and deposits it into the customer's account.

• money

• depository

• nondepository

• legal

Multiple Choice

What type of non deposit institution will buy and sell stocks and bonds on behalf of clients?

• Securities investment dealers

• Pension funds

• Insurance companies

• Finance companies

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Financial Services

• Banking products are services offered to customers

by financial institutions

• General banking services offered to all customers
• Checking account is a bank account that allows the

account owner to make deposits, write checks, and
withdraw money
– Check is a written order for the bank to pay a specific

amount to the person or organization to which the
check is written

• Savings account is a bank account used by

depositors to accumulate money for future use

Multiple Choice

Which of the following affects the value of money?

• How much currency is in circulation

• How many units the currency can be divided into

• How portable the form of currency is

• How durable the form of currency is

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Financial Services

• Electronic banking offered with checking accounts

– Online banking allows electronic funds transfer (EFT)
– Direct deposit is a type of EFT transaction; money is

deposited directly into a customer’s checking account

– Automatic bill payment is a regular payment made from

a customer’s bank account to a vendor or supplier

• Bank cards issued with checking accounts

– Debit cards allow customers to pay for purchases and

withdraw cash

– Customers are required to apply for credit cards

Multiple Choice

Which of the following financial institutions earn profits from loans taken from the funds in each of its depositors' accounts?

• Pension funds

• Credit unions

• Securities investment firms

• Commercial banks

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Financial Services

• Some banking services are specifically for business

customers
– Business checking accounts
– Line of credit is a prearranged amount of credit that is

available for a business to use as needed

– Long-term business loans
– International banking services
– Letter of credit is a document guaranteeing that a

buyer will pay the seller the agreed-upon amount and
within the time specified

Multiple Choice

Which of the following financial institutions are considered to be owned by their depositors?

• Commercial banks and savings and loan associations

• Savings and loan associations and mutual savings banks

• Mutual savings banks and credit unions

• Pension funds and savings institutions

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Banking Regulations

• Federal and state regulations apply to financial

institutions

• Deposit insurance in case of bank failure
• Must comply with consumer protection laws

– Truth in Lending Act
– Equal Credit Opportunity Act
– Community Reinvestment Act

Debit Cards and Credit Cards

Expenses

Money that you spend

Multiple Select

Select all fixed expenses

• car payment

• house payment or mortgage

• Vacation

• rent

Multiple Select

Select all variable expenses

• car payment

• house or mortgage payment

• vacation

• rent

Multiple Select

Select all the variable expenses

• electric bill

• water bill

• groceries

Multiple Select

Select all of the fixed expenses

• Insurance

• clothes and shoes

• gas for traveling

• eating out

• Doctor bills

Multiple Select

Select all of the variable expenses

• Cell phone bill

• gifts and presents

• car repairs

• Netflix subscription

Debit Cards vs. Credit Card

Knowing the differences

Debit Cards

These cards are directly connected to your banking or checking account. Money is used immediately when you use it.

Credit Cards

Is a card not connected to a bank account, but instead when you use it you are borrowing money

Multiple Choice

Affects credit score

• Debit Card

• Credit Card

• Both

Multiple Choice

Has perks such as, cash back and rewards

• Debit Card

• Credit Card

• Both

Multiple Choice

Has fraud protection

• Debit Card

• Credit Card

• Both

Multiple Choice

May cause unnecessary debt

• Debit Card

• Credit Card

• Both

Multiple Choice

Great for emergencies

• Debit Card

• Credit Card

• Both

Multiple Choice

It may require a signature when making a purchase.

• Debit Card

• Credit Card

• Both

Multiple Choice

It can be used to purchase goods and services.

• Debit Card

• Credit Card

• Both

Multiple Choice

To avoid carrying cash, Ned pays for his lunch using this card. Each time he uses this card his checking account decreases. Which card did he use?

• Debit Card

• Credit Card

• Both

Multiple Choice

Mrs. Brady took her family out to eat. She handed the waitress a card to purchase the meal. This charge appeared on a bill that she paid three weeks later. Which card did she use?

• Debit Card

• Credit Card

• Both

Multiple Choice

Rosa’s gas pump went out as she was driving her car to work. Since she did not have enough money to cover the cost to replace the pump, she used a card that allowed her to pay later. What card did she use?

• Debit Card

• Credit Card

• Both

Multiple Choice

Eric purchased a movie ticket with his card. This money will come straight out of his checking account. What card did he use?

• Debit Card

• Credit Card

• Both

Multiple Choice

If the card is lost or stolen, report it immediately.

• Debit Card

• Credit Card

• Both

Multiple Choice

Interest may be charged but can be avoided by paying the entire balance each month.

• Debit Card

• Credit Card

• Both

Multiple Choice

A PIN (Personal Identification Number) is required to make a purchase.

• Debit Card

• Credit Card

• Both

Multiple Choice

Convenient to use.

• Debit Card

• Credit Card

• Both

Multiple Choice

Hefty fees may be charged if you spend more than what is in the account.

• Debit Card

• Credit Card

• Both

Multiple Choice

Consumers can purchase items now and pay for them later.

• Debit Card

• Credit Card

• Both

Multiple Choice

Each purchase is a loan that is repaid later.

• Debit Card

• Credit Card

• Both

Multiple Choice

Money is withdrawn directly from a checking or savings account.

• Debit Card

• Credit Card

• Both

Open Ended

What do you know about debit cards?

Open Ended

What do you know about credit cards?