The links below are designed for print; more screen reader friendly documents can be found on the Students: Additional Lumen Resources page.<\/p>
Money serves three basic functions:<\/p>\r\n
Virtual currencies, such as BitCoin, are using the traditional concept of \u201cmoney\u201d but as an alternative to the established Federal Reserve System. Although gaining in popularity, these virtual currencies are unregulated and pose some serious risks to those using this medium of exchange.<\/p>\r\n
Cashless payment systems such as Google Wallet and ApplePay allow consumers to carry their \u201ccash\u201d in their mobile devices. As more retailers move to \u201ctap to pay\u201d or scanning QR codes to complete transactions, the need to carry conventional paper money and coin diminishes. The question raised by this technology is not whether it will lead to a cashless society, but rather which mobile payment service will rise to the top and capture the market.<\/p>\r\n
The government uses two measures to track the money supply:\u00a0M-1<\/strong>\u00a0includes the most liquid forms of money, such as cash and checking-account funds.\u00a0M-2<\/strong>\u00a0includes everything in M-1 plus near-cash items, such as savings accounts and time deposits below $100,000.<\/p>\r\n Financial institutions serve as financial intermediaries between savers and borrowers and direct the flow of funds between the two groups. Financial institutions offer a wide range of services, including checking and savings accounts, ATM services, and credit and debit cards. They also sell securities and provide financial advice.<\/p>\r\n A bank holds on to only a fraction of the money that it takes in\u2014an amount called its\u00a0reserves<\/strong>\u2014and lends out the rest to individuals, businesses, and governments. In turn, borrowers put some of these funds back into the banking system, where they become available to other borrowers. The\u00a0money multiplier<\/strong>\u00a0effect ensures that the cycle expands the money supply.<\/p>\r\n Most large banks are members of the central banking system called the\u00a0Federal Reserve System<\/strong> (commonly known as \u201cthe Fed\u201d). The Fed\u2019s goals include price stability, sustainable economic growth, and full employment. It uses\u00a0monetary policy<\/em> to regulate the money supply and the level of interest rates. To achieve these goals, the Fed has three tools:<\/p>\r\n The four main ways that businesses raise financial capital are:<\/p>\r\n Critical thinking is a problem-solving skill that involves using logic, reasoning, and creativity to analyze issues, make decisions, and overcome problems, which is highly valued by employers and developed through education.<\/p>\r\n angel investors<\/strong><\/p>\r\n individuals who will invest their own money in small, new companies at an early stage of development in exchange for ownership in the company<\/p>\r\n barter<\/strong><\/p>\r\n trading one good or service for another<\/p>\r\n bond<\/strong><\/p>\r\n a financial contract where a borrower agrees to repay the amount borrowed plus interest over a period of time in the future<\/p>\r\n bondholder<\/strong><\/p>\r\n anyone who owns a bond and receives interest payments<\/p>\r\n capital gain<\/strong><\/p>\r\n increase in the value of the stock (or of any asset) between when it is bought and when it is sold<\/p>\r\n central bank<\/strong><\/p>\r\n the organization responsible for conducting monetary policy and ensuring that a nation\u2019s financial system operates smoothly<\/p>\r\n certificate of deposit<\/strong><\/p>\r\n a savings medium where the depositor commits to leaving an amount of money in the bank for a specified period of time.<\/p>\r\n collateral<\/strong><\/p>\r\n an asset such as property promised by a borrower to protect the interests of the lender in case the borrower cannot repay their loan<\/p>\r\n commodity money<\/strong><\/p>\r\n objects that have their own value in addition to their use as money<\/p>\r\n corporate bond<\/strong><\/p>\r\n a bond issued by a company<\/p>\r\n corporation<\/strong><\/p>\r\n a business owned by shareholders who have limited liability for the corporation\u2019s debts<\/p>\r\n covenant<\/strong><\/p>\r\n a rule included in a contract<\/p>\r\n critical thinking<\/strong><\/p>\r\n obtaining, interpreting, and using information to analyze issues, make decisions, and overcome problems<\/p>\r\n cryptocurrency<\/strong><\/p>\r\n a digital or virtual currency that is based on cryptography to ensure secure transactions<\/p>\r\n demand deposits<\/strong><\/p>\r\n money held in accounts where the bank must give the account owner their money on demand when a check or debit card is used; also called checkable deposits<\/p>\r\n discount rate<\/strong><\/p>\r\n the interest that the Fed charges banks that need to borrow money<\/p>\r\n dividend<\/strong><\/p>\r\n a direct payment from a corporation to its shareholders<\/p>\r\n double coincidence of wants<\/strong><\/p>\r\n two people each want some good or service that the other person can provide<\/p>\r\n equity<\/strong><\/p>\r\n an ownership interest in a company<\/p>\r\n Federal Reserve<\/strong><\/p>\r\n the central bank of the U.S.; also called the Fed<\/p>\r\n fiat money<\/strong><\/p>\r\n money that derives value from the government that issued it<\/p>\r\n financial capital markets<\/strong><\/p>\r\n a market where financial intermediaries bring together those who wish to invest money and those who wish to borrow money<\/p>\r\n financial intermediary<\/strong><\/p>\r\n an institution such as a bank that operates between two parties to facilitate financial transactions<\/p>\r\n initial public offering<\/strong><\/p>\r\n the first time a corporation sells stock to the public<\/p>\r\n liquidity<\/strong><\/p>\r\n how quickly a financial asset can be used to buy a good or service<\/p>\r\n M1 money supply<\/strong><\/p>\r\n includes the most liquid forms of money such as cash, demand deposits, and traveler\u2019s checks<\/p>\r\n M2 money supply<\/strong><\/p>\r\n includes M1 money in addition to other monies that are less liquid such as time deposits, certificates of deposit, and money market funds<\/p>\r\n medium of exchange<\/strong><\/p>\r\n money acts as an intermediary between buyer and seller<\/p>\r\n mobile payments<\/strong><\/p>\r\n a way of accessing financial services and conducting transactions on a mobile device<\/p>\r\n money<\/strong><\/p>\r\n anything that people use to pay for goods and services and to pay people for their work<\/p>\r\n money market funds<\/strong><\/p>\r\n accounts where the deposits of many individual investors are pooled together and invested in a safe way, such as in short-term government bonds<\/p>\r\n municipal bond<\/strong><\/p>\r\n a bond issued by a city<\/p>\r\n open market operations<\/strong><\/p>\r\n when the Fed sells or buys U.S. Treasury bonds<\/p>\r\n private corporation<\/strong><\/p>\r\n a business whose shares are not traded on a public stock exchange<\/p>\r\n regionally-based currency<\/strong><\/p>\r\n currencies developed by regions such as cities or groups of communities to support local economic development<\/p>\r\n reserve requirement<\/strong><\/p>\r\n the rule that members of the Federal Reserve System must hold some of their deposits in cash in their vaults or in an account at a district Federal Reserve bank<\/p>\r\n savings deposits<\/strong><\/p>\r\n accounts that do not include the ability to write checks but can be accessed via ATM or withdrawal from the bank<\/p>\r\n shareholder<\/strong><\/p>\r\n a person who owns stock in a corporation<\/p>\r\n shares<\/strong><\/p>\r\n a fractional piece of ownership of a corporation<\/p>\r\n state bond<\/strong><\/p>\r\n a bond issued by a U.S. state government<\/p>\r\n stock<\/strong><\/p>\r\n a type of investment that represents ownership in a corporation<\/p>\r\n stock exchange<\/strong><\/p>\r\n marketplace where anyone may purchase stock<\/p>\r\n store of value<\/strong><\/p>\r\n money holds its value from day to day<\/p>\r\n time deposit<\/strong><\/p>\r\n deposits at a bank or other financial institution that pay interest but cannot be withdrawn on demand<\/p>\r\n unit of account<\/strong><\/p>\r\n the standard by which other values are measured<\/p>\r\n venture capital<\/strong><\/p>\r\n money gathered from a variety of individual or institutional investors by a business that invests in start-ups with substantial growth potential<\/p>","rendered":" The links below are designed for print; more screen reader friendly documents can be found on the Students: Additional Lumen Resources page.<\/p>\n Money serves three basic functions:<\/p>\n Virtual currencies, such as BitCoin, are using the traditional concept of \u201cmoney\u201d but as an alternative to the established Federal Reserve System. Although gaining in popularity, these virtual currencies are unregulated and pose some serious risks to those using this medium of exchange.<\/p>\n Cashless payment systems such as Google Wallet and ApplePay allow consumers to carry their \u201ccash\u201d in their mobile devices. As more retailers move to \u201ctap to pay\u201d or scanning QR codes to complete transactions, the need to carry conventional paper money and coin diminishes. The question raised by this technology is not whether it will lead to a cashless society, but rather which mobile payment service will rise to the top and capture the market.<\/p>\n The government uses two measures to track the money supply:\u00a0M-1<\/strong>\u00a0includes the most liquid forms of money, such as cash and checking-account funds.\u00a0M-2<\/strong>\u00a0includes everything in M-1 plus near-cash items, such as savings accounts and time deposits below $100,000.<\/p>\n Financial institutions serve as financial intermediaries between savers and borrowers and direct the flow of funds between the two groups. Financial institutions offer a wide range of services, including checking and savings accounts, ATM services, and credit and debit cards. They also sell securities and provide financial advice.<\/p>\n A bank holds on to only a fraction of the money that it takes in\u2014an amount called its\u00a0reserves<\/strong>\u2014and lends out the rest to individuals, businesses, and governments. In turn, borrowers put some of these funds back into the banking system, where they become available to other borrowers. The\u00a0money multiplier<\/strong>\u00a0effect ensures that the cycle expands the money supply.<\/p>\n Most large banks are members of the central banking system called the\u00a0Federal Reserve System<\/strong> (commonly known as \u201cthe Fed\u201d). The Fed\u2019s goals include price stability, sustainable economic growth, and full employment. It uses\u00a0monetary policy<\/em> to regulate the money supply and the level of interest rates. To achieve these goals, the Fed has three tools:<\/p>\n The four main ways that businesses raise financial capital are:<\/p>\n Critical thinking is a problem-solving skill that involves using logic, reasoning, and creativity to analyze issues, make decisions, and overcome problems, which is highly valued by employers and developed through education.<\/p>\n angel investors<\/strong><\/p>\n individuals who will invest their own money in small, new companies at an early stage of development in exchange for ownership in the company<\/p>\n barter<\/strong><\/p>\n trading one good or service for another<\/p>\n bond<\/strong><\/p>\n a financial contract where a borrower agrees to repay the amount borrowed plus interest over a period of time in the future<\/p>\n bondholder<\/strong><\/p>\n anyone who owns a bond and receives interest payments<\/p>\n capital gain<\/strong><\/p>\n increase in the value of the stock (or of any asset) between when it is bought and when it is sold<\/p>\n central bank<\/strong><\/p>\n the organization responsible for conducting monetary policy and ensuring that a nation\u2019s financial system operates smoothly<\/p>\n certificate of deposit<\/strong><\/p>\n a savings medium where the depositor commits to leaving an amount of money in the bank for a specified period of time.<\/p>\n collateral<\/strong><\/p>\n an asset such as property promised by a borrower to protect the interests of the lender in case the borrower cannot repay their loan<\/p>\n commodity money<\/strong><\/p>\n objects that have their own value in addition to their use as money<\/p>\n corporate bond<\/strong><\/p>\n a bond issued by a company<\/p>\n corporation<\/strong><\/p>\n a business owned by shareholders who have limited liability for the corporation\u2019s debts<\/p>\n covenant<\/strong><\/p>\n a rule included in a contract<\/p>\n critical thinking<\/strong><\/p>\n obtaining, interpreting, and using information to analyze issues, make decisions, and overcome problems<\/p>\n cryptocurrency<\/strong><\/p>\n a digital or virtual currency that is based on cryptography to ensure secure transactions<\/p>\n demand deposits<\/strong><\/p>\n money held in accounts where the bank must give the account owner their money on demand when a check or debit card is used; also called checkable deposits<\/p>\n discount rate<\/strong><\/p>\n the interest that the Fed charges banks that need to borrow money<\/p>\n dividend<\/strong><\/p>\n a direct payment from a corporation to its shareholders<\/p>\n double coincidence of wants<\/strong><\/p>\n two people each want some good or service that the other person can provide<\/p>\n equity<\/strong><\/p>\n an ownership interest in a company<\/p>\n Federal Reserve<\/strong><\/p>\n the central bank of the U.S.; also called the Fed<\/p>\n fiat money<\/strong><\/p>\n money that derives value from the government that issued it<\/p>\n financial capital markets<\/strong><\/p>\n a market where financial intermediaries bring together those who wish to invest money and those who wish to borrow money<\/p>\n financial intermediary<\/strong><\/p>\n an institution such as a bank that operates between two parties to facilitate financial transactions<\/p>\n initial public offering<\/strong><\/p>\n the first time a corporation sells stock to the public<\/p>\n liquidity<\/strong><\/p>\n how quickly a financial asset can be used to buy a good or service<\/p>\n M1 money supply<\/strong><\/p>\n includes the most liquid forms of money such as cash, demand deposits, and traveler\u2019s checks<\/p>\n M2 money supply<\/strong><\/p>\n includes M1 money in addition to other monies that are less liquid such as time deposits, certificates of deposit, and money market funds<\/p>\n medium of exchange<\/strong><\/p>\n money acts as an intermediary between buyer and seller<\/p>\n mobile payments<\/strong><\/p>\n a way of accessing financial services and conducting transactions on a mobile device<\/p>\n money<\/strong><\/p>\n anything that people use to pay for goods and services and to pay people for their work<\/p>\n money market funds<\/strong><\/p>\n accounts where the deposits of many individual investors are pooled together and invested in a safe way, such as in short-term government bonds<\/p>\n municipal bond<\/strong><\/p>\n a bond issued by a city<\/p>\n open market operations<\/strong><\/p>\n when the Fed sells or buys U.S. Treasury bonds<\/p>\n private corporation<\/strong><\/p>\n a business whose shares are not traded on a public stock exchange<\/p>\n regionally-based currency<\/strong><\/p>\n currencies developed by regions such as cities or groups of communities to support local economic development<\/p>\n reserve requirement<\/strong><\/p>\n the rule that members of the Federal Reserve System must hold some of their deposits in cash in their vaults or in an account at a district Federal Reserve bank<\/p>\n savings deposits<\/strong><\/p>\n accounts that do not include the ability to write checks but can be accessed via ATM or withdrawal from the bank<\/p>\n shareholder<\/strong><\/p>\n a person who owns stock in a corporation<\/p>\n shares<\/strong><\/p>\n a fractional piece of ownership of a corporation<\/p>\n state bond<\/strong><\/p>\n a bond issued by a U.S. state government<\/p>\n stock<\/strong><\/p>\n a type of investment that represents ownership in a corporation<\/p>\n stock exchange<\/strong><\/p>\n marketplace where anyone may purchase stock<\/p>\n store of value<\/strong><\/p>\n money holds its value from day to day<\/p>\n time deposit<\/strong><\/p>\n\r\n\t
Financing Business Operations<\/h3>\r\n
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Career Connection: Critical Thinking<\/h3>\r\n
Glossary<\/h2>\r\n
Download a pdf of this page here.<\/a><\/h4>\n
Download the Spanish version here.<\/a><\/h4>\n
Essential Concepts<\/h2>\n
What is Money<\/h3>\n
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The U.S. Banking System<\/h3>\n
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Financing Business Operations<\/h3>\n
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Career Connection: Critical Thinking<\/h3>\n
Glossary<\/h2>\n