Money creation and Fractional Banking. Explores the role of Central Banks and the Federal Reserve; interest rates and the money supply in finance.

1. Money and Banking

2. Money
• Transactional vehicle
• Money is any item or
verifiable record that is
generally accepted
as payment for goods and
services and repayment
of debts.
• The main functions of money
are distinguished as:
– a medium of exchange
– a store of value
• Any item or verifiable record
that fulfills these functions can
be considered money.

3. Gold Standard
• A gold standard is a
monetary system in
which the standard
economic unit of
account is based on a
fixed quantity of gold.

4. Bi Metal Standard
• bimetallism is a monetary
standard in which the value of
the monetary unit is defined as
equivalent both to a certain quantity
of gold and to a certain quantity of
silver;
• such a system establishes a fixed rate
of exchange between the two metals.
The defining characteristics of
bimetallism are[
• Both gold and silver money are legal
tender
• The government will convert both
gold and silver into legal tender coins
at a fixed rate for individuals in
unlimited quantities. This is called
free coinage because the quantity is
unlimited, even if a fee is charged.

5. Fiat Currency

6. Banking
• Bank Architecture
• Safety
• Security
• Stability
• Earn Interest
• Checking

7. Demand Deposits
• Access to your money
at any time
• Disingenuous on the
part of bankers
•

8. Fractional Banking System
• Reserve Ratio
• Debt to Equity Ratio

9. Bank Balance Sheet

10. Multiplier Effect
• The expansion of a
country's money supply that
results from banks being
able to lend. The size of the
multiplier effect depends on
the percentage of deposits
that banks are required to
hold as reserves. In other
words, it is money used to
create more money and is
calculated by dividing total
bank deposits by the
reserve requirement.

11. Inflation & Recession

13. Liquidity
• In banking, liquidity is
the ability to meet
obligations when they
come due without
incurring unacceptable
losses.

14. Solvency
• Solvency, in finance or
business, is the degree
to which the current
assets of an individual
or entity exceed the
current liabilities of that
individual or entity.

15. Leverage

16. FDIC
• Insurance on bank
accounts
• Promotes risk
• A government subsidy
that allows bankers to
arbitrage yield curve

17. Central Bank

18. Federal Reserve
• Target Rate
• Fed Funds Rate

19. Open Market Operations

20. Supply & Demand

21. Tools of the Fed
• Open Market Operation
• Fed Funds Window
• Repo agreements

23. Fed Chairs

24. Fed Chairs

25. U.S. Treasury Department
• Bills
• Notes
• Bonds

26. Yield Curve
• A yield curve in which
short-term debt
instruments have a
lower yield than long-
term debt instruments
of the same credit
quality.

27. Fiat Money
• U.S. Currency
• Issued by Fed but
obligation of U.S.
government

28. Money Supply
• M0 and M1

29. Relationship between Money Supply
and Interest Rates