MAB - Module Overview

Money and Banking

Introduction

Shells, gold, cows, barley, salt, beads, copper, animal skins. What do all of these things have in common? At one time or another, all of these things functioned as money…that is, they served as a store of value, were a medium of exchange, and provided a unit of account. However, few of these items provided the characteristics needed to make "good" money. Portability (it is difficult to carry a cow around in your pocket), divisibility (it is also difficult to divide a cow), and durability (salt tends to dissolve when wet) are things we look for in our money today.

Banks have played a critical part in how our money has evolved over time, as well as how money is used in society. Originally acting as storehouses and safe-keepers of gold and jewels, banks have moved from handling checks and cash to moving funds through electronic data. In addition, banks have been at the forefront of delivering all sorts of financial services to individuals and businesses. Let's begin to explore how money and banking have changed over the years.

Essential Questions

• What are the characteristics and functions of money?
• What role do banks serve in the economy?
• How do the various types of financial institutions compare in function and form?
• What services do banks provide?
• How can a bank benefit an individual?
• How can a bank benefit a company?

Key Terms

Depository Institution: Financial Institutions that accept deposits are known as depository institutions.

Non-Depository Institution: Financial institutions that offer other services, but do not accept deposits are non-depository.

Deposit: A deposit is a sum of money placed or kept in a bank account, usually to gain interest.

Commercial Bank: A Commercial bank is a financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit.

Credit Union: A credit union is a nonprofit-making money cooperative whose members can borrow from pooled deposits at low-interest rates.

Savings and Loan: A savings and loan association (S & L) is a financial institution that specializes in savings deposits and mortgage loans, and has become one of the primary sources of mortgage loans for homebuyers.

Financial Planning: Financial planning is the process of meeting your life goals through the proper management of your finances.

ACH: Automated Clearing House (ACH) System is a domestic electronic funds transfer system.

EFT: Electronic Funds Transfer is the movement of funds by non-paper means (i.e., electronically) usually through a payment system such as the ACH network.

Medium of Exchange: an agreed-upon system for measuring the value of goods and services

Store of Value: Something tradable that holds value. Something such as money that keeps its value

Unit of Account: a standardized unit that can be used to value something

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