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Banking

Terms

Introduction and Summary

Purpose of Banks

100% Reserve Banking System  -  A system in which banks must keep all deposits on hand and ready for withdrawal.
Assets  -  Cash, stocks, bonds, and physical goods that are stores of wealth and value.
Balance Sheet  -  An accounting tool where assets and liabilities are compared side by side.
Borrowers  -  Individuals who take out loans from banks.
Currency  -  Money, either fiat or commodity, that is commonly used in an economy.
Demand Deposits  -  Deposits made by in banks that can be withdrawn at any time--that is, on demand.
Deposits  -  Money given to banks for safekeeping and to earn interest.
Federal Deposit Insurance Corporation  -  A corporation that insures individual bank accounts up to $100,000 to ensure that the public is confident in the banking system.
Federal Funds Interest Rate  -  The discount interest rate at which the branch banks of the Fed loan money to other banks.
Federal reserve  -  The federal group that controls the money supply though monetary policy and fiscal policy.
Federal Reserve Banks  -  Branches of the Fed that serve as banks for non-government controlled banks by accepting deposits, giving withdrawals, and making loans as needed.
Fiat Money  -  Money that has no intrinsic value but that is instead only valuable because it is backed and regulated by a governing body.
Financial Intermediary  -  An entity, like a bank, that works between savers and borrowers by accepting deposits and making loans.
Fiscal Policy  -  Operations by the Fed that affect the money supply including manipulation of the federal funds interest rate and the reserve requirement.
Fractional Reserve Banking System  -  A banking system wherein less than 100% of the deposits are required to be held as reserves.
Government Bonds  -  Bonds issued by the government and bought and sold by the Fed as a form of monetary policy to manipulate the money supply.
Inflation  -  An increase in the price level over time.
Interest  -  Money paid by a borrower to a lender in return for the use of money in the form of a loan.
Interest Rate  -  The rate of interest in the form of percent of the balance due per year.
Lender  -  One who gives money to be repaid at a later date, with interest.
Liabilities  -  Money owed.
Loans  -  Money given by lenders to borrowers.
Monetary Policy  -  Policy used to affect the money supply employed by the Fed. In particular, this describes the open market operations of buying and selling government bonds.
Money  -  The stock of assets used in transactions within an economy.
Money Multiplier  -  The number that describes the change in the money supply given an initial deposit and a reserve requirement.
Money Supply  -  The total amount of currency in circulation as controlled by Fed policy.
Open Market Operations  -  The purchase and sale of government bonds by the Fed in order to affect the money supply.
Paper Balances  -  Deposits that exist on paper but are not backed by physical currency.
Principle  -  The initial amount of money given as a loan.
Reserve  -  Money not given out in loans that is available for repaying depositors.
Reserve Requirement  -  The percent of total deposits required to be held back for repaying depositors. This is controlled by the Fed as a form of monetary policy.
Savers  -  Individuals who deposit money in banks.
Treasury  -  The government agency that prints, mints, and stores money.
Formulae
Money Multiplier = 1 / (reserve requirement)  - 
Change in Money Supply = [initial deposit * (1 / reserve requirement)] - initial deposit  - 

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