GUIDED NOTES 4



GUIDED NOTES 4.02 UNDERSTAND THE BANKING SYSTEMPART A: FEDERAL RESERVE SYSTEMWhat is the Federal Reserve System? A banking system AKA The Fed. President Woodrow signed the Federal Reserve Act into law. Organized by the Federal in . The purpose of The Fed isTo and confidence in the US system.To ensure a , and stable To supervise and member and help serve the efficiently.Prior to the Federal Reserve Act could issue or coin Who participates in the Federal Reserve?All banks are to be part of the Fed Optional for banksDivisions are called There are districts in the Every comes under a Each Federal Reserve is a owned by its banks.NC is in , the District.What are the arms of The Fed?Board of = represent the (public) sector.Usually meet about a week, ordinarily on and Public is to look into the meetings of the Board of Usually discuss policy such as and interest rates. Current chairman of the Board of Governors is ; Alan is the retired chairman. Chairman is by the and by similar to procedure for Supreme Court District Reserve = represents the business ( ) sector.Purpose of Federal ReserveEstablished to and regulate Known as the “ “Assists with the more efficientlyAll banks are to join the Federal Reserve State banks have the of the systemFederal Reserve System ServicesFEDERAL SUPERVISION Fed Supervision: set requirements. Banks are to keep a certain percentage ( for many years) of all in the bank’s or on with the federal reserve bank.Reserves = (money) set aside for Example: a rush of by Purpose: to risk of bank and protect moneyFed Supervision: member banks. Inspects banks by financial records.Audit = an inspection of to verify the of books (records) of the ; bank is with banking . Similar to Individuals/ who are audited by the to review the of a tax return.Fed supervision: approves bank .Banks merge to be more To offer customers more (local, regional, national, )To offer a of more efficientlyTo with a growing array of other service companies such as: money and other mutual funds, companies, credit and credit arms of industrial firms (General Electric and Ford Motor)AGENT FOR FEDERAL GOVERNMENTFed acts as of government. The Fed holds a account for the US Disburses benefits and other transfer payments using the deposit systemAccepts some types of federal money. Example – Federal tax such as payroll taxes, federal income tax, and social security taxes are using federal deposit into a national bank.MONETARY POLICYFed regulates .What is monetary policy? When the Federal Reserve money and conditions in the to achieve economic . How? The Fed determines the of money in and available for , then either or to stabilize/stimulate the economy.Tight money – policy when money is available at interest rates, (stabalizes) economyLoose money – policy when money is available at interest rates, (stimulates) economyFed money to member banks. Monitors the of interest which is the used by the Fed to money to banks. Compare banks to (go-betweens) trading in money at ““ prices. The Fed charging interest rates affect (member banks) who pass rates to . Rate = borrowing Rate = borrowingNOTE: the Federal Reserve loan money to or (only member banks) HOWEVER, rates the Fed charges member banks “ “ and affect the rates for Fed acts as house. Clears//settles checks for member banks. Federal Reserve uses the (ACH) to complete fund (check settlements) banks. Interdistrict Settlement Fund in used for district transfers. Checks/deposit slips have MICR coding ( Recognition). Scanners read on checks to process data and through the ACH and Interdistrict Settlement Fund.OPEN MARKET POLICYFed participates in operations by and government . What are government securities? Bills and - loans to government in various (amounts) and for various periods. Advantages and Disadvantages = + offer a rate of interest over a fixed of ; + attractive because not subject to ; - cannot be easily and are .Open Market Operations – government securities are sold at a (from face value) but are (cashed in) for face value on the (due) date. Examples: Purchase treasury for $7,500 ( price), redeem at date for $10,000 ( ). Purchase Series EE savings for $25, redeem in 7 for $25, redeem in 7 at for $50.ernment Savings Bonds – Example Denomination minimum Payable after Earns interest to Short-term of the US Treasury - maturity in year or Issued to in , or Long-term obligations of the US Treasury - maturity at to years, minimum ; Treasury - maturity at yearsBank rates encourages by member banks and therefore borrowing by . The purpose of us to regulate the . It is the most method of controlling the Who controls the open market operations? Federal Market Committee (FOMC) – A committee within the ReserveLENDING STANDARDS Sets for consumer dealing with and . Sets limits for and by member banks. NEWS: Federal Reserve revised bank rules since banking . Ex. Lower % of total loans are for / acreage SUPPLIES CURRENCYMoney is a of for . US money is and .Federal Reserve supplies currency. Legal for all , public and private. Paper currency supplied is “ “ Printing currency (paper money, ) Bureau of and . Counterfeiting is a federal . Coinage is MINTED (supplied) and regulated by the Dept. of , US PART B: BANKINGCLASSIFICATION OF FINANCIAL INSTITUTIONSDepository Financial Institution: earns money to their business by accepting from . Types include:Commercial - full service, offer many services including , , and accountsSavings and Associations (S&Ls) – traditionally specialize in and loans, but now are very similar to banksMutual banks –owned by the and specialize in and home Credit - for , serve their only and are by their Non-depository Financial Institution: earns money to finance their by specific such as policies, and .Life companies – term, , universal Companies – stocks, , mutual fundsConsumer companies - rates if bad creditMortgage companies – loan money for , and homes Outlets – based; used if you do have a accountPawnshops – loan money based on of item Which characteristics of financial institutions are of interest?Services ConvenienceFees and SERVICES: does the institution offer services?SavingsDepository of taxesChecking – various to meet customers - short-term for capital, long-term for Cards CardsSafe boxesTrust managementSAFETY: Is the institution insured against ?Federal Corporation (FDIC)Created by to maintain stability and public confidence in the nation’s system: insures , supervises financial National Association (NCUA) charters and supervises CONVENIENCE: Does the institution offer the desired?Physical available Services are easy to access and useATM RESTRICTIONS: Are there balances that must be kept or other restrictions?Minimum - money amount to stay in at all times. If account keeps minimum balance, are often (eliminated)FEES AND : What are the short and long-term of the services?Flat feesFees per NSF ( funds) feesChecks Debit Number of allowed fees beginMinimum balance required to feesCOMMON SERVICES EFT – Electronic Funds Bill payChecking (Personal or business) Checks: Certified, , Traveler’sMoney orders - , Express, ONLINE BILL PAYUse the to make Often basedPrivacy can be an issue – Change frequently; use only sitesAnswer questions 1 – 3 in space provided:__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________COMMON PAYMENT SERVICES – EFTElectronic Funds Transfer – banking method in which and technology is used as a for and other paper forms of Automated Teller Machines ( )Pay by systems or Withdrawals – paychecks, automated bill paymentPoint of Sale transfers - cardsAutomatic and Checking accounts – used by and to manage transactions. Check – a form issued by the institution. Account holders withdrawals by writing checks. Parties to a check = Payee, Drawee and DrawerWho is the:Payee: Drawee: Drawer: RECORD KEEPING – keep a in check registry or on check stub by: recording , recording (checks written, EFTs, and bank fees)Traveler’s Check – used by travelers for safety. Requires 1st when check is issued and 2nd signature when check is . Draft drawn by a well-known financial institution on or its agent.Answer questions 1 – 3 in space provided:Certified check is written by a for you from bank account to give to someone. It is funds that the bank reserves from your account.Answer certified check questions 1 – 5 in the space provided:Money order – draft issued by a , bank, express company or company for use in paying or funds to the purchaser. Orders agency to pay amount on form to another party. Types of money orders: money order, money order, money order.Answer money order questions 1 – 5 in the space provided:OPENING A CHECKING ACCOUNTSigning a card is the step.Writing a check for Endorsing a check for An allows the to cash the check, the check or payment of the check to someone else. Different types of endorsements are: Definition: on the back of a checkProvides that the cashed or transferred payment of the check to someone elseEndorser (payee who is signing) should the check the way it is on the of the check and if the name is , correct the directly the first endorsementBlank endorsement – signed with the endorser’s name only ( is the from the of the check). Can be cahsed by who holds the check with a endorsement. Don’t use blank endorsement you are ready to cash or depositSpecial endorsement - payment of a check to someone else. Signs check, then writes “pay to the order of” another person, can be used to make payment on a . Full endorsement – transfers to someone else; signs the check over to person to payment.Restrictive endorsement - use of the check so it can be only to account; type of endorsement; cannot be by a or someone who finds the check; best to use when a check for deposit or when using the ATM for .CHECK WRITING PROCEDURESWrite information in the first (ensure checks are written in order)Write the the check is writtenWrite the nameWrite in the amount of the checkWrite in the amount of the check in Write the of the check (memo) the checkCHECK REGISTER OR CHECK STUB BALANCEHow do I know the amount in my checking account? checks written (or debit card transactions) from balance deposits to balance Keep a balance after checks or making .The check register is documentation of how much money is in your account.Corrections are made when you (balance) the bank statementBANK RECONCILIATIONDocument that shows two balances. Your record of your checking account and the record of your . Do you have the same balance? Reconciliation helps to find/ any in your check registerOutstanding checks are checks that have not (been from) the bank statement balance. You need to know items in order to statementFind out which checks/deposits are by comparing the statement with the Reconciling a checkbook: make sure the records agree with recordsCheck for checks and Check the checks, deposits and activity on the bank statement to make sure that records are Make to the bank statement and your to ensure that you and the have the same amount of moneyReconcile every statement Steps in bank reconciliation:Obtain the bank statementDetermine checks Find between the monthly bank statement and monthly check registerCalculate the balanceIf the do not agree, check the steps and Account balances must be ................
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