chapter 17 banking and financial services · 2016. 9. 15. · 424 chapter 17 banking and financial...

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C H A P T E R 1 7

Banking and Financial Services17-1 Banks and Other Financial Institutions

17-2 Financial Services and Electronic Banking

17-3 Checks and Payment Methods

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The banking and financial services industry offers many career opportunities. Numerous finan-cial workers are employed in commercial banks. Others work in specialized banks, savings and loan associations, credit unions, and finance companies. Work activities in the financial services industry range from serving customers and researching eco-nomic trends to planning marketing activities for financial institutions.

Employment Outlook• Career opportunities in banking and financial ser-

vices are expected to see continued growth.• Slower growth is expected for certain banking jobs

due to industry consolidation and technology.• Employment of bank branch managers will grow

as banks open branches in areas with strong population growth.

• Electronic banking activities will influence the need for employees with technology skills.

Related Job Titles• Branch Manager• Teller• Head Teller• Loan Officer• Customer Service Representative• Financial Services Sales Agent• Financial Manager• Information Processing Manager• Economist

Needed Skills• Entry-level jobs may require only a high school

education, with college business courses needed for advancement.

• Bank officers, professional personnel, and execu-tive positions require a college degree.

• Continuing education in cash management, finan-cial analysis, and international banking should be considered.

• Interaction with customers requires strong com-munication skills and the ability to speak a second language is an asset.

• Accuracy, professional appearance, and computer competencies are vital for success.

What’s it like to work in . . .Financial ServicesEach morning, Ken Li goes online to see how various economic fac-tors are affecting interest rates. He knows that when money is more expensive, borrowing by businesses and consumers declines. But if interest rates are lower, the use of credit will likely increase. This additional borrowing can result in higher earnings for banks.

Changing interest rates are just one area of research for Ken, who works for a bank with offices in 23 states. Today, he must also investigate current trends for employment, consumer spending, and retail sales. These economic indicators provide man-agers with information to better plan strategies for their banking organizations.

What about you? What knowledge of banking and financial services do you have that might be of value when selecting a career?

Planning a Career in . . .BANKING AND FINANCIAL SERVICES

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17-1 Banks and Other Financial Institutions

Focus on Real Life“I finally got a job for the summer,” Gerri told Mike. “I can save money and go on that trip.”

“Where are you going to save your money?” asked Mike.“At home, of course,” responded Gerri.“Are you kidding?” Mike went on to say. “That’s dangerous!

Your money can get lost, or you might spend it before summer comes.”

“Well, what should I do with my money?” asked Gerri.“Deposit it in a bank,” answered Mike.“Will it be safer?” asked Gerri.“For sure,” said Mike. “Banks and other financial institutions

provide safety and growth for your money. Plus they help their customers in many ways with other financial matters.”

“You’re kidding! I guess it’s time I learn about banking,” Gerri responded.

Key TermsFederal Reserve

System (Fed)

commercial bank

credit union

Federal Deposit Insurance Corporation (FDIC)

GoalsExplain the pur-pose of the Federal Reserve System.

List the types of financial institutions.

Discuss factors for selecting a financial institution.

422 C H A P T E R 1 7 B A N K I N G A N D F I N A N C I A L S E R V I C E S

THE BANKING SYSTEMHave you ever thought of a bank as a business? Many people do not think of banks in this way. Yet, a bank is a busi-ness just like a store or factory. As a busi-ness, a bank sells services such as checking and payment accounts, savings accounts, loans, and investments.

Banks are regulated more strictly than most other businesses. If a busi-ness fails, some people lose money. If a bank fails, thousands of people are affected.

The Federal Reserve SystemMost banks attempt to attract the depos-its of customers. However, as an indi-vidual, you cannot open an account in a Federal Reserve Bank because it is a bank for banks.

Explain the pur-pose of the Federal Reserve System.

main ideaExplain the pur-pose of the Federal Reserve System.

main idea

What is the purpose of the Federal Reserve?

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The federal government set up the Federal Reserve System (Fed) to supervise and regulate member banks and to help banks serve the public efficiently. All national banks are required to join the Federal Reserve System, and state banks may join. Banks that join the system are known as member banks. The United States is divided into 12 Federal Reserve districts, with a central Federal Reserve Bank in each district, as shown in Figure 17-1.

Federal Reserve ActivitiesA Federal Reserve Bank serves member banks and the economy in several ways. One service provided by the Fed is the holding of reserves. Banks cannot lend all of the money they receive from custom-ers. They are required to keep a part of the money deposited by customers on deposit with the Federal Reserve System. The Fed holds these deposits in case the banks need additional funds to meet the daily customer demand.

As a result, a bank will lend only a certain percentage of deposited funds. It keeps the

rest in reserve. This regulation is designed to help the banking system and the economy operate efficiently and to protect deposit.

For example, suppose a customer depos-its $1,000 and the bank is required to hold 15 percent of all deposits in reserve. This means the bank can lend $850, which is 85 percent of the new deposit.

85% � $1,000 � $850

Another service of the Federal Reserve System is clearing checks for member banks. Clearing refers to the paying of checks among different banks in differ-ent locations. The Fed processes millions of checks each day to make sure that the correct amounts are added to and sub-tracted from the appropriate accounts.

Work as a Team

Banks are considered one of the most impor-tant types of businesses in any economy. Prepare a list of ways in which the banking system affects (1) businesses, (2) consumers, and (3) workers.

FIGURE 17-1Which Federal Reserve

Regional Bank serves banks

in your community?

Federal Reserve Districts

Boston

VT

ME

NH

RI

NJ

MACT

NY

PA

OH

WVVA

MD DE

NC

SC

GAAL

FL

LA

TX

NM OK

CO

ND

SD

MT

CA

OR

WA

WY

UT

AR

HI

AK

MS

KSMO

NE

MI

IA

IL

MN

WI

IN

KY

AZ

NV

TN

New York

Buffalo

Philadelphia

Baltimore

Jacksonville

New Orleans

San Antonio

El Paso

Dallas

Houston

Birmingham

Chicago

Denver

Helena

Kansas City

Oklahoma City

Omaha

Minneapolis

Cincinnati

Louisville

Cleveland

Nashville

Salt Lake CitySan Francisco

Seattle

Los Angeles

Atlanta

Detroit

Miami

MemphisLittle RockCharlotte

Richmond

Pittsburgh

Portland

St. Louis

Federal Branch Cities

Federal Reserve Bank Cities

Board of Governors of the Federal Reserve System

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1 7 - 1 B A N K S A N D O T H E R F I N A N C I A L I N S T I T U T I O N S 423



Banking and the EconomyThe actions of the banking system affect you in many ways. Several million people work in banks, savings and loan associa-tions, credit unions, and other financial institutions. The following activities are just some of the ways that individuals, businesses, and governments use banking services.• Borrow money to build roads• Borrow money to buy seeds for crops• Deposit cash from business operations• Finance a college education• Invest for retirement• Obtain a mortgage• Process credit card transactions• Save for a vacation

The savings you and others deposit make banking services possible. Deposits do not remain idle in bank vaults. They are put to work. When you and others deposit money in a bank, you are help-ing to create jobs and economic growth that benefit your community and your society.

TYPES OF FINANCIAL INSTITUTIONSWhen someone says, “I’m going to the bank,” the person might actually mean a credit union or a cash machine. There are many types of financial institutions that provide a wide range of products and services. Figure 17-2 shows how financial institutions are classified.

Deposit InstitutionsDeposit institutions, also called deposi-tory intermediaries, accept deposits from people and businesses and use them to finance their business.

Commercial Banks The most common way for a bank to be orga-nized is as a commercial bank. Commercial banks are often called full-service banks because they offer a wide range of financial services. Commercial banks offer checking accounts, provide savings accounts, make loans to indi-viduals and to businesses, and offer other services. In large banks, different departments may handle these services. There may be a savings department, a trust department, a real estate depart-ment, and an investment department. Many banks have full-service branch offices in shopping centers and grocery stores.

chec kpoint ››What is the main purpose of the Federal Reserve System?

chec kpoint ››››What is the main purpose of the Federal Reserve System?

List the types of financial institutions.

main ideaList the types of financial institutions.

main idea

Deposit and Non-Deposit Institutions

Deposit Institutions

Commercial Banks

Savings and Loan Associations

Mutual Savings Banks

Credit Unions

Non-Deposit Institutions

Life Insurance Companies

Investment Companies

Consumer Finance Companies

Mortgage Companies

Check Cashing Outlets

Pawnshops

FIGURE 17-2Which of these types of

institutions have you done

business with?


Savings and Loan Associations Traditionally, a savings and loan association (S&L) specialized in savings accounts and making loans for home mortgages. Deregulation in the 1980s allowed these institu-tions to expand the array of services they could offer. They have become more like banks. Today, many S&Ls use the words savings bank in their names.

Mutual Savings Banks A mutual savings bank is a savings bank that is owned by, and operated for the benefit of, its depositors. The profits are distributed in propor-tion to the amount of business each participant does with the company. While a mutual savings bank provides a variety of services, it is organized mainly for savings and home loans. Mutual savings banks are located mainly in the northeastern United States.

Credit Unions A user-owned, not-for-profit, cooperative financial institution is called a credit union. People in the same company, govern-ment agency, labor union, or profes-sion often form credit unions. Serving members only, credit unions accept savings deposits and make loans for a variety of purposes. When people deposit money in a credit union, they become members because deposits are considered partial ownership in the credit union. Today, credit unions also offer a wide range of financial services. The National Credit Union Administration (NCUA), a fed-eral agency, regulates these financial institutions.

Non-Deposit Financial InstitutionsThe other major category of financial institutions is non-deposit institutions or non-depository intermediaries. They do not take or hold deposits. They earn

their money selling specific services or policies.

Life Insurance Companies People commonly buy life insurance to provide financial security for their dependents. Besides protection, many life insurance companies also offer financial services such as investments. Through careful investing in new and existing companies, life insurance companies help to expand business in the economy.

Investment Companies People can choose investment opportunities for long-term growth of their money through investment companies. Many investors own shares of one of the more than 60,000 mutual funds worldwide. Investment companies make these mutual funds available.

Consumer Finance Companies A business that specializes in making loans for long-lasting or durable goods, such as cars and refrigerators, and for financial emergencies is a consumer finance com-pany. Because consumer finance com-panies make loans, they are a part of the financial services industry. Unlike banks and other financial institutions, consumer finance companies do not accept savings deposits.

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What is unique about a credit union?



Mortgage Companies Buying a home is an important activity in society. Mortgage companies, along with other financial institutions, provide loans for buying a home or other real estate.

Check-Cashing Outlets People who do not have bank accounts may use check-cashing outlets (CCOs) to cash paychecks and to obtain other financial services. CCOs offer a wide range of services such as electronic tax filing, money orders, pri-vate postal boxes, utility bill payment, and the sale of bus and subway tokens. Some services provided at a CCO are more expensive than at other businesses.

Pawnshops Pawnshops make loans based on the value of some tangible object, such as jewelry or other valuable items. Pawnshops commonly charge higher fees than other financial institu-tions and should usually be avoided.

SELECTING A FINANCIAL INSTITUTIONTo obtain the best value for your finan-cial services dollar, comparison shop. You should think about the services offered, safety, convenience, fees and charges, and restrictions.

Services OfferedAs financial institutions offer addi-tional financial services, your choices may become confusing. There are four basic types of banking services you will use.1. Savings accounts2. Checking and payment accounts3. Loans and other credit plans4. Other services, such as safe-deposit

boxes and investment adviceAs you work through the market-

place maze, it is important for you to determine which banking services meet your needs. Do not be attracted by

fancy financial product names or flashy services that you might never need or use.

SafetyThe federal agency that helps to regu-late banks and other financial institu-tions is the Federal Deposit Insurance Corporation (FDIC). It protects deposi-tors’ money in case of the failure of a bank or financial institu-tion that it regulates. The FDIC insures all accounts in the same name at each bank up

chec kpoint ››What are some examples of non-deposit financial institutions?

chec kpoint ››››What are some examples of non-deposit financial institutions?

Discuss factors for selecting a financial institution.

main ideaDiscuss factors for selecting a financial institution.

main idea

Why is a bank a safe place for your valuables? Are there any risks?

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1 - 1 S A T I S F Y I N G N E E D S A N D W A N T S 427

to an amount of $100,000. Although the FDIC is a government agency, banks provide money for its opera-tion. Almost 99 percent of all banks are FDIC members.

The National Credit Union Admini-stration (NCUA) regulates credit unions. NCUA insures a depositor’s funds, up to $100,000, through its National Credit Union Share Insurance Fund. Some state-chartered credit unions use a private insur-ance program. Recently, the FDIC and the NCUA increased deposit coverage for certain types of retirement accounts from $100,000 to $250,000.

Although most banks and financial institutions have federal deposit insurance, do not assume that this is the case at every financial institution. Make sure the institu-tion where you keep your savings is insured.

ConvenienceDo you want 24-hour banking services? Do you want branch offices near your home or work? These are some of the fac-tors you will need to think about as you decide about convenience. There is usu-ally a trade-off. While more convenience may mean higher costs, in recent years

online banking has resulted in lower costs for many consumers.

Fees and ChargesFinancial services have costs. Compare your needs with the price you pay. Remember, seemingly low fees for using an ATM or having a checking account can add up to hundreds of dollars in a short time.

RestrictionsCosts are not always measured in dollars. If you must keep $500 on deposit to get “free” checking you may be losing the chance to earn interest on those funds at another institution.

If you must keep money on deposit for two years to earn a higher rate, you are restricted from using those funds for some unplanned purpose. Always balance your needs with the conditions imposed upon you. When you are not satisfied, shop around!

chec kpoint ››What factors should be considered when selecting a financial institution?

chec kpoint ››››What factors should be considered when selecting a financial institution?

17-1

Key ConceptsDetermine the best answer.

1. The financial institution most likely to charge the high-est rate for a loan would be aa. bankb. pawnshopc. credit uniond. mortgage company

2. If deposit insurance is most important to you when selecting a financial institution, you are most con-cerned witha. safetyb. conveniencec. servicesd. fees

Make Academic Connections3. Research Conduct library and online research about

the Federal Reserve System. When and why did it start? What are the main responsibilities of the Fed?

4. Technology Visit the web site of the Federal Deposit Insurance Corporation to obtain current information on deposit insurance. What other information on the FDIC web site would be of value to consumers?

school.cengage.com/business/introtobiz

Assessment



GoalsIdentify the financial services used by consumers.

Explain types of checking accounts.

Describe electronic banking activities.

TYPES OF FINANCIAL SERVICESA financial institution can provide ser-vices for various personal and business activities. The services you use depend on your needs.

Savings ServicesSafe storage of funds for future use is a common need. One of the main services that financial institu-tions offer is accepting money from customers for safekeeping. A range of savings plans is available for this purpose.

Payment ServicesThe ability to transfer money to others is necessary for daily business activities. Types of payment services include checking accounts, debit cards, online payments and automatic withdrawals.

Identify the financial services used by consumers.

main ideaIdentify the financial services used by consumers.

main idea

17-2 Financial Services and Electronic Banking

Focus on Real Life“Sixteen dollars for cash machine fees!” exclaimed Hans George as he opened his bank statement. “I guess the cost of those cash withdrawals adds up fast!”

Hans George has a routine of using his cash card at an auto-matic teller machine several times a week. He really likes the con-venience of obtaining cash.

Hans also finds that when getting cash is easy, he easily over-spends. While automatic teller machines are convenient and easy to use, you must also consider fees and the potential for impulse buying. In recent years, cash machine fees have risen from nothing to $1 or $2 per withdrawal.

How much can cash machine transaction fees cost? If you have two $1 transaction fees a week, you will pay $104 in fees over a year.

Key Termssafe-deposit box

service charge

debit card


What can you do to reduce or eliminate bank fees?

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Lending ServicesMost people, businesses, and governments borrow money at some time. A business may want to borrow money to build a new warehouse or buy products to resell. Individuals may borrow to buy a car or pay college tuition. Banks make loans because most of their income is from the interest they charge borrowers.

Banks offer many types of lending ser-vices. These include auto loans, business loans, and mortgages. Credit cards allow a person to buy items without having the cash. When paying with a bank credit card, you are borrowing money from the bank.

Another way that banks lend money is by sending several checks with a customer’s credit card statement. This allows the cus-tomer to use one of the checks to obtain

cash or to pay a bill. If the customer uses the checks, the bank charges the amount of each check to the customer’s credit card account. In effect, the amount of the check is a loan.

Electronic BankingElectronic funds transfer (EFT) refers to the use of computers and other technology for banking activities. Electronic banking services include the use of automated teller

Work as a Team

The future of banking includes expanded services available through online sources. As a team, create a written description of ways in which banks will offer savings, loans, and other financial services online.

Tec hnology in Action

“Place your finger on scanner to authorize payment.” This is an example of biometry at work in the real world. Biometry is the analysis of biological observations, and its use in identification is not new. For centuries, scars, complexion, eye color, and height have been used to identify people. Today, technology known as biometrics allows banking and other security activities based on physical features.

Fingerprint Verification Bank of America created a program to use a person’s fingerprint to give individu-als access to their online banking services. Law enforcement agencies have long used fingerprint identifica-tion techniques. For banking, a chip is used to store a customer’s finger-print. A payment or funds transfer

is authorized when the customer places a finger on a small scanner.

Iris Scanning The pattern of every iris is unique. Scanning the characteristics of your eyeball may someday be used as a bank account password or to allow access to your computer. Today’s technology includes cameras that can scan an iris from a distance of two or three feet.

Voice Recognition Customers at the American Savings Bank in Hawaii no longer have to enter a number to access their account. Using a voice-activated response system, custom-ers are able to obtain an account balance or make a money transfer.

Hand Geometry Instead of tap-ping out a password on a keypad or swiping a card, hand geom-etry is used to measure physical

characteristics of the hand or fingers. Using a three-dimensional view, this technology allows workers to access a secure area and may be used in the future to permit banking transactions.

Face Recognition The Mr. Payroll face recognition system uses machines to compare two images of the face to authorize check cashing.

Think Critically1. What concerns might be associ-

ated with biometric banking activities?

2. Conduct an Internet search to obtain additional information on new technology currently being used in banking transactions. Choose one technology and write a short report.

Biometric Banking

1 7 - 2 F I N A N C I A L S E R V I C E S A N D E L E C T R O N I C B A N K I N G 429



machines (ATM), point-of-sale transac-tions, direct deposit, and automatic bill pay-ment. Online computer banking allows a customer to access many financial services.

Storage of ValuablesBanks offer safe-deposit boxes for storage of valuables. Because these safe-deposit boxes are in well-guarded vaults, they are very safe places to keep jewelry, rare coins, investment certificates, birth records, a list of insurance policies, and other valuable documents.

Only you or someone to whom you have given the right to open the box may open it. Not even a bank has the right to open your safe-deposit box unless it is ordered to do so by a court. You rent safe-deposit boxes by the year. They come in a variety of sizes.

Investment AdviceMany financial institutions help customers by offering financial advice and investment services. Banks can assist customers with decisions about buying a home, offer tips on money management, and help customers exchange U.S. funds for foreign currency.

Most banks offer advice on invest-ments. This involves savings that are put to work to earn more money. Types of investments include government bonds, stocks, and mutual funds.

Management of TrustsMany banks manage investments on behalf of customers. When they do this, the money or other property that is turned over for the bank to manage is said to be held in trust. This service can be offered through a trust company or through trust departments in banks.

Trusts are used by people of all ages. They are especially useful for very young people and for some elderly people. A young person who inherits money may not have the skill and experience to manage it wisely. Elderly people who are ill may ask the trust department of a bank to manage

their money. The bank makes investments and keeps the customers informed about what is happening to their money.

TYPES OF CHECKING ACCOUNTSWhile checking accounts vary from one bank to another, three types are most common.

Regular Checking AccountsIf you write a lot of checks each month, consider a regular checking account. A service charge is a fee a bank charges for handling a checking account. With most banks, there is no service charge for a regu-lar checking account as long as you main-tain a certain minimum balance. This amount varies and is often $300 or higher.

chec kpoint ››What are the main financial services used by consumers?

chec kpoint ››››What are the main financial services used by consumers?

Explain types of checking accounts.

main ideaExplain types of checking accounts.

main idea

How does online banking make managing your checking

account and paying bills more convenient?

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A checking account at a credit union may be called a share draft account because the members are called shareholders.

Interest-Earning Checking AccountsMany financial institutions offer check-ing accounts that earn interest. These accounts may require a higher monthly balance than regular checking accounts. If the account falls below the required amount, the bank usually pays no interest and may add a service charge.

The rates of interest that banks pay their customers also vary. Usually, a bank will offer a higher rate of interest when a higher balance is kept in the account. Very often, interest rates on checking accounts are quite low. When you are depositing larger amounts of money, consider other savings alternatives.

Special Checking AccountsIf you only write a few checks each month, consider a special checking account. Also called activity accounts, banks charge customers about 10 to 20 cents for each check written. A monthly service charge may also be added.

Comparing Checking AccountsWhen selecting a checking account, evaluate the follow-ing items.• Minimum balance• Interest rate earned, if any• Monthly service charge• Fees for other services,

such as printing checks and stop payment orders

• Other restrictions

When choosing a checking account, be careful. A bank may attract you with a low minimum balance, but fees can result in a higher total cost.

ELECTRONIC BANKINGEach day, the use of electronic bank-ing services expands. You can do your banking from an ATM, from a home computer, or from a wireless Internet con-nection on your cell phone.

E-Banking ServicesOver the years, banks have expanded their hours of operation to meet the demands of their customers. Traditional “banker’s

chec kpoint ››What are three main types of checking accounts?

chec kpoint ››››What are three main types of checking accounts?


Describe electronic banking activities.

main idea

Examples of Electronic Banking Activities

ATM ACTIVITIES

PREAUTHORIZED ACTIVITIES

ONLINE ACTIVITIES

POINT-OF-SALE ACTIVITIES

Check account balances ✓ ✓

Withdraw cash ✓

Make deposits ✓

Transfer funds ✓ ✓

View account history ✓

Pay bills ✓

Apply for loans ✓

Manage investments ✓

Accept direct deposits ✓

Pay bills automatically ✓

Make debit card purchases ✓

FIGURE 17-3Has electronic banking made it easier for you to manage your finances? Explain your answer.


hours” of 9 a.m. to 3 p.m. are a thing of the past. Banks have evening and weekend hours, ATM machines dispense cash 24 hours a day, and e-banking services are available any time of the day or night. Figure 17-3, on page 431, illustrates some common electronic banking services.

Automatic Teller Machines Commonly called a cash machine, an automatic teller machine (ATM) allows many banking services. The most common use of an ATM is withdrawing cash from a bank account or getting a cash advance from a credit card. Bank customers also can use ATMs to check account balances, make deposits, or transfer funds from one account to another.

A debit card, or cash card, is used for ATM transactions. A debit card is different from a credit card. With a debit card issued by your bank, you are using money that is in your account. With a credit card, you are borrowing from the bank to pay later.

A lost or stolen debit card can be expensive. If you notify the financial insti-tution within two days of the lost card, your liability for unauthorized use is $50. After that, you can be liable for up to $500 of unauthorized use for up to 60 days.

ATM services have expanded to pro-vide other types of transactions. You can use these machines to buy bus passes, postage stamps, and gift certificates.

Be aware that many banks charge fees for ATM usage. To minimize ATM

fees, compare rates at several financial institutions. Use your bank’s ATMs to avoid surcharges. Withdraw larger amounts to avoid fees on several small transactions.

Payments at the Point-of-Sale In a point-of-sale transaction, a merchant accepts a debit card to pay for purchases. Most gas stations, stores, and restaurants accept this type of payment. Vending machines that accept debit cards are also becoming more common.

Direct Deposit A major portion of society uses direct deposit of paychecks and government payments. Funds are depos-ited electronically and available automati-cally for your use.

Automatic Bill Payments Each month, many people pay their rent, mortgage, loans, utilities, and other bills with-out doing anything. Automatic bill payment requires a bank customer to authorize preset amounts of monthly expenses. The bank deducts the pay-ments from your account and transfers them to the appropriate companies. With automatic bill payments, be sure to check each month that the correct amounts have been deducted.

Electronic Payment OptionsThe use of cash, checks, and credit cards is declining. These payment methods are being replaced by newer electronic alternatives.

Debit Card Transactions Most stores, restaurants, and other businesses accept debit cards issued by Visa and MasterCard. You may also know these cards as check cards. When the debit card transaction is processed, the amount of the purchase is deducted from your check-ing account.

Online Payments Various Web com-panies and banks now provide online bill payment services between buyers and

Many types of banking services are available from many types of financial institutions. Access the web site shown below and click on the link for Chapter 17. Access the “Checking and ATM” section. What information is avail-able to help consumers select a checking account when using electronic banking services?




sellers. When using these services, be sure to think about the monthly charge as well as online security and customer ser-vice availability.

Also on the Web are “cybercash” or “e-cash” services designed to serve as financial intermediates. These organi-zations create their own e-money that serves as a medium of exchange for online transactions.

Stored-Value Cards The gift card your aunt sent you for your birthday is a stored-value card. Prepaid cards for phone service, transit fares, highway tolls, and school lunches are common. Some stored-value cards are disposable. Others can be reloaded with additional funds. Some employers use prepaid cards instead of paper paychecks to help employees avoid check-cashing fees. Employees can use the cards to make purchases and to withdraw cash at ATM machines.

Smart Cards These “electronic wallets” are similar to ATM cards. Their imbedded microchip stores prepaid amounts as well as account balances, transaction records, insurance information, and medical history.

Banking in the FutureThe way you use banks and money will continue to change. Electronic financial services will be combined with wireless technology. You will be able to do almost any transaction away from the financial institution.

An access card or a handheld device will provide a large number of services. The technology will create a personal-ized system for obtaining, transferring, and using funds. Expanded information related to financial activities, health care, education, careers, travel, and recreation will also be a key element.

chec kpoint ››What are common electronic banking services?

chec kpoint ››››What are common electronic banking services?

F Y IF Y IMobile payment systems through cell phones and other wireless devices are expanding. This usually occurs through an existing bank account. Most banking activities accessed by computers soon also will be able to occur via cell phone. In the future, transactions may bypass banks and appear as charges on your phone bill.


1. True or False. Using a debit card is similar to writing a check.

2. True or False. Automatic payments are made through automatic teller machines.

3. True or False. If you write only a few checks each month you should consider a regular checking account.

Make Academic Connections4. Visual Communication Conduct a survey of 20 stu-

dents to determine the types of financial services they use. Create a table or graph to report your findings.

5. Technology Locate examples of online payment ser-vices and “cybercash” companies. What services are provided? What concerns might be associated with these services?


17-2 Assessment




BUSINESS IMPROVING SOCIETY

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MicrofinanceHow could a loan of $50 result in a life-changing experience? In countries such as Bangladesh, Nepal, the Philippines, and Zimbabwe, micro-finance has helped improve the economy and society.

Microfinance, also called microlend-ing and microcredit, involves programs of small loans to people for self-employment projects. The result-ing business activities generate enough income to provide for life necessities and family needs. Most microcredit efforts involve nonprofit organizations, which helps avoid political influences.

Most microfinance clients have little income and no access to formal financial institutions. They are usu-ally self-employed, household-based entrepreneurs. In rural areas, clients are small farmers or food-process-ing workers. In urban areas, microfi-nance clients include shopkeepers, service providers, artisans, and street vendors.

In southeastern Bangladesh, one of the poorest regions in the world, BRAC (formerly the Bangladesh Rural Advancement Committee) helps women obtain loans. Loans help them farm fish, keep cows for milk production, grow vegetables, raise poultry, buy rickshaws, and sew clothing. The women pay 15 percent simple interest on loans, which is

much less than they would have to pay to loan sharks. The banking is done in the village through an agent of the microfinance institution. Loans are not secured through collateral. Repayment is made in 52 weekly installments in a year’s time, and simple interest is used rather than compound interest.

BRAC also works to improve the health of women and children. More than 30,000 volunteers have been trained by BRAC to recognize and treat 10 common illnesses such as anemia, diarrhea, ringworm, and scabies.

The success of microfinance is not limited to Bangladesh. Organizations around the world provide affordable financing to improve the economy of rural areas. Using a model similar to the one used by BRAC, an organization offers

a small inexpensive loan to help an entrepreneur start or grow a small business. Income generated by the business is then used to cover living expenses, operate the business, and repay the loan.

Over time, some microfinance programs have expanded to include other financial services. In addition to loans, savings accounts and insurance coverage may be provided. These ser-vices help borrowers build assets and protect against risks.

Think Critically1. What are the main benefits of

microfinance programs?2. What are some possible concerns

of microfinance?3. Conduct an Internet search to find

other examples of microfinance around the world.

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OPENING A CHECKING ACCOUNTThe following are some of the benefits that checking accounts provide for consumers.• Convenience and ease of making

payments• Safety to make payments with less risk

than using cash• Proof of payment• A record of

finances for man-aging your money

The First DepositOpening a checking account starts with signing a signature card. This document is used to verify your signature. The bank compares the signa-ture on checks to the

one on the signature card. A sample signa-ture card is shown in Figure 17-4.

Sometimes two or more people have an account together called a joint account. Each person who will write checks on the account must sign the signature card. Any signer of the card in a joint account can write checks on

17-3 Checks and Payment Methods

Focus on Real LifeAlicia Garcia made her first deposit in her new checking account. Her friend Joni asked her, “If I write you a check, could you give me the cash? You can deposit my check in your account later.”

“How do I know your check is good?” Alicia asked.“What! We’ve been friends for more than 10 years,” Joni

responded. “Don’t you trust me?”“Of course I trust you,” said Alicia. “Just remember that if a

check isn’t good, it can result in some expensive service fees.”The next day, Laura came up to Alicia and said, “I can’t wait to

send away for this sweater, but the ad says ‘no personal checks.’ How can I pay for it?”

“Let me tell you about money orders,” responded Alicia.

Key Termsendorsement

check register

stop payment order

bank statement

bank reconciliation

outstanding checks

GoalsDescribe three main types of endorsements.

Describe proper check-writing procedures.

Explain the bank rec-onciliation process.

Identify other pay-ment methods.

Describe three main types of endorsements.

main idea

1 7 - 3 C H E C K S A N D P A Y M E N T M E T H O D S 435

FIGURE 17-4Do you understand

how a signature

card protects you

and the bank?

Second National BankPERSONAL CHECKING ACCOUNT

JOINT AND SEVERAL (Payable to the order of either or the survivor) INDIVIDUAL (If payable on death to namedsurvivors, fill in section below)Indicate number of signatures required

SIGNATURE

SIGNATURE

orPRINT OR TYPE NAME(S)

HOME PHONE

OFFICER APPROVAL SOCIAL SECURITY NUMBER ACCOUNT NUMBER

Office: Date:

PAYABLE ON DEATH OF DEPOSITOR TO SUCH OF THE FOLLOWING NAMED AS SURVIVE DEPOSITOR:

(PRINT OR TYPE NAME -- DESIGNATION BY OTHER MEANS IS NOT SUFFICIENT.)

DRIVERS LICENSE NO./STATE

ADDRESS CITY AND STATE ZIP CODE HOW LONG? MO. YRS.

Signature Card


samudra

Line

samudra

Line

samudra

Line

samudra

Line

samudra

Line

samudra

Line


the account as if he or she were the only owner.

When you deposit money in a check-ing account, you fill out a deposit slip. This form lists all items you are depositing—currency, coins, or checks. The deposit slip shows your name, account number, the date, the items deposited, and the total amount of the deposit.

Types of EndorsementsBefore you can deposit a check, it must be endorsed. This involves writing your name on the back of the left end of the check. An endorsement is written evi-dence that you received payment or that you transferred your right of receiving payment to someone else.

When you endorse a check, your responsibilities are almost as great as if you had written the check yourself. As an endorser, you are actually making this promise: “If this check is not paid by the bank, I will pay it.”

Your endorsement must be made in the 1½-inch space on the left side of the check. If you write outside this limit, the bank may return the check. Different endorsements have differ-ent purposes. Figure 17-5 shows some examples.

Blank Endorsement An endorsement that consists of only the endorser’s name is a blank endorsement. To endorse a check, sign your name in ink exactly as it is written on the face of the check. If the name on the check is different from your official signa-ture, you will need to endorse the check twice. First, use the name as given on the check. Then, write your name as it appears on the account.

A blank endorsement makes a check payable to anyone who has the check. While you can use this endorsement to transfer any check, sometimes another type of endorsement is better.

FIGURE 17-5Describe the benefits of each

type of endorsement. Special Endorsement Two Signatures Required

Restrictive Endorsement

DOLLARS

20 ––68-36 574

410623

Types of Endorsements


Full Endorsement The use of a full endorsement, also called a special endorse-ment, allows you to transfer a check to another person. You write the words “Pay to the order of…” followed by the name of the person or business to which the check is being transferred. This is fol-lowed by your signature. This phrasing results in only the specified person being able to sign and cash the check.

Restrictive Endorsement A restrictive endorsement limits the use of the check to the purpose given in the endorsement. For example, you may have several checks that you want to mail to the bank. You could write “For deposit only” above your signature, followed by your account num-ber. This endorsement restricts use of the check so it can only be deposited to your account.

USING A CHECKING ACCOUNTChecking accounts are an easy way to access funds. Still, to use a checking account correctly, you must understand certain information and follow some simple procedures.

Check-Writing ProceduresSome checks are light blue or green in color. Others have a picture of a forest, a sports team logo, or an inspirational quote. No matter what they look like, all checks contain essentially the same information.

Elements of a Check Figure 17-6 shows some terms that are used to identify the parts of a check. Three parties are shown on each check.• The drawer is the owner of the

account who signs the check.• The payee is the person to whom the

check is written.

chec kpoint ››What are the three types of endorsements?

chec kpoint ››››What are the three types of endorsements?

FIGURE 17-6Why is the amount of this

check written twice?


Describe proper check-writing procedures.

main idea

Parts of a Check

Alicia Garcia19684 Absaroka DriveHouston, TX 77083-5549

PAY TO THEORDER OF

Second National BankHouston, TX 77083-9073

FOR

$DOLLARS

20 – –

10186-171 1130

FOR CLASSROOM USE ONLY

Printed name and addressof account owner (Drawer)

Name ofbank

(Drawee)

PayeeDate checkis written

Checknumber

ABAnumber

Amount in figures

Drawer’saccount number

for electronicsorting (MICR)

Bank’sidentification

code forelectronic sorting

and routing

Drawer’ssignature

Purposeof check

Amount in words



• The drawee is the bank or other finan-cial institution that pays the check.The Check Register Your checkbook

will have a place for recording account activities. One of three formats may be used for this purpose. The check stub is a form attached to the check by a perforated line. A check register is a separate book, usually the same size as the checkbook. Note that both forms provide blanks to fill in the same type of information about the check. A duplicate copy of the check may also be automatically created when you write the check.

Always fill out the stub or register first. If you write the check first, you may forget to record the information before you trans-fer the check.

Writing a Check Fill out the check com-pletely and carefully using the following seven steps.

1. Write checks in order by number so you know which checks have been paid.

2. Write the date in the proper space.3. Write the payee’s name on the line fol-

lowing Pay to the Order of.4. Write the amount of the check in

figures after the printed dollar sign. Write the amount close to the dol-lar sign to prevent someone from altering your check. Write the cents figures close to the dollar figures so that additional numbers cannot be inserted.

5. Write the dollar amount in words on the line below the payee’s name. Write the cents in figures as a fraction of a dollar. Begin writing at the far left end of the line. Draw a line from the frac-tion to the printed word Dollars to fill all unused space.

6. Write the purpose of the payment on the line at the bottom of the check.

7. Sign your checks with the same sig-nature you wrote on your signature card.

Proper Check Writing Poor check writing can cause problems and financial difficulties. Follow these tips to avoid trouble.1. Write checks only on the forms provided

by your bank. Checks can be written on just about anything—even a paper bag—but sorting and processing can be delayed when you do not use the proper form.

2. Write checks in ink. This prevents someone from altering the amount.

3. Only write checks if money is available. Writing a check for more than is in your account can result in an over-drawn account. The bank may not pay the check and you will most likely be charged a fee.

Work as a Team

Many people carelessly write checks, making it easy for others to alter the checks. Review the steps for proper check writing and discuss the importance of each item. Write a list of common errors of check writing and what problems might occur.

Why is it important to fill out a check properly?

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4. Use the current date. A postdated check is one that is dated later than the date on which it is written. This business practice is unwise and can result in additional service charges.

5. Avoid making checks payable to “Cash” or to “Bearer.” Such a check can be cashed by anyone. Instead, make the check out to yourself or to the bank as payee.

6. Always fill in the amount. If you leave it blank, you may be held responsible for amounts filled in by others.

7. Void checks on which you make errors. Do not try to erase or retrace your writing. Write “Void” across the check. Make note of the voided check in the check register.

8. Record every payment from your check-ing account, whether the payment is by check or EFT. Some people carry a few blank checks. When one of these checks is used, make a note of it and record it in the register. Also, promptly record all transactions made at an ATM.

Stopping PaymentIn certain situations, you may not want your bank to pay a check that you have written. To do so, you will fill out a stop payment order, a written notice that tells the bank not to pay a certain check. Because banks charge a high fee for stop-ping payment on a check, use this process only for good reason. You may learn, for example, that a check you have written to pay a bill was lost in the mail. A check you have written may have been stolen. Before you write a new check, you should stop payment on the one that was lost or stolen.

THE RECONCILIATION PROCESSAs a depositor, you will need to review the record of your account that the bank keeps. At regular intervals, usually monthly, the bank will send you a report on the status of your account known as a bank statement.

Bank Statement InformationWhile bank statement formats vary, most present the following information.• The balance at the beginning of the

month.• The deposits made during the

month.

chec kpoint ››What is the purpose of a check register?chec kpoint ››››What is the purpose of a check register?

Explain the bank rec-onciliation process.

main idea


How can a computer program help with reconciling

your checkbook?

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• The checks paid by the bank during the month.

• Any automated teller transactions made during the month.

• Any electronic fund transfers (EFT) or special payments the bank has made.

• Service charges for the month, including charges for services such as stopping payment on a check.

• Any interest earned on the account.• The balance at the end of the month.

Examples of some of these items appear on the bank statement shown in Figure 17-7.

Determine Checks PaidWhen your bank statement arrives, com-pare the checks you wrote to those that have been paid by your bank. Banks might not return actual canceled checks that have been paid. Instead, banks can use a substitute check, which is a digital reproduction of the original paper check. In some cases banks do not return checks or provide substitute checks unless the customer requests them.

There are times when you need to show proof of a payment. In most cases, informa-tion on the statement will be sufficient to prove payment. If the check showing the endorsement is needed, a substitute check is considered a legal equivalent of the original check.

FIGURE 17-7How many checks were paid

by the bank and posted to

Alicia’s account?

Monthly Account Statement

Alicia Garcia19684 Absaroka DriveHouston, TX 77083-5549

Please examine at once. If no errors are reported within 10 days, account will be considered correct.

ACCT. 1648-7214DATE 5/1/- -PAGE 1

BALANCEFORWARD

NO. OFWITH-

DRAWALS

0 00 14 433 89 4 826 95 3 00 390 06

TOTALAMOUNT

NO. OFDEP.

TOTALDEPOSIT AMOUNT

SERVICECHARGE

BALANCETHIS STATEMENT

BALANCEDATEDEPOSITS AND

OTHER CREDITS

KEY TO SYMBOLS

CHECKS AND OTHER DEBITS

101102

103104

106*107

109*110111112113

114

39.9550.00

32.97.87

50.0016.3025.78

65.3333.4624.33

5.8012.85

4.2572.00

3.00

ATW

AP TexPowerSC

4/104/134/154/164/224/224/234/244/244/244/264/274/274/274/274/294/304/304/30

331.85291.90241.90291.90258.93258.06208.06191.76165.98340.98 275.65 242.19 217.86 212.06 199.21 469.31 465.06 393.06 390.06

331.85

50.00

175.00

270.10 AD

AD-AP-ATD-ATW-CC-EC-OD-

AUTOMATIC DEPOSITAUTOMATIC PAYMENTAUTOMATIC TELLER DEPOSITAUTOMATIC TELLER WITHDRAWALCERTIFIED CHECKERROR CORRECTEDOVERDRAFT

PC-PR-RC-RT-SC-ST-TC-

PAID OVERDRAFT CHARGEPAYROLL DEPOSITRETURN CHECK CHARGERETURN ITEMSERVICE CHARGESAVINGS TRANSFERTRANSFER CHARGE

*Where this asterisk is shown, a preceding check is still outstanding or has been included on a previous statement.

Second National BankChecking Account Statement


Find DifferencesYou keep your own record of your check-ing account, usually in a check register. The bank statement is the bank’s record of your account.

The document created to show how the two balances were brought into agree-ment is called the bank reconciliation. Bringing the balances into agreement is known as reconciling the bank balance. The bank often prints forms for recon-ciling on the backs of bank statements. Figure 17-8 shows an example of a bank reconciliation.

The balances shown on your records and the bank statement may be different. Following are some of the most common reasons for the difference.

• Some of the checks you wrote may not have cleared (been paid). These checks, which have not been deducted from the bank statement balance, are called outstanding checks.

• You may have forgotten to record a transaction in your register, such as an ATM deposit or automatic bill payment.

• A service charge may appear on the bank statement.

• You may have mailed a deposit to the bank that has not yet been received.

• Interest earned may have been added.• You may have recorded the amount of

a check incorrectly in the check regis-ter. You may have added or subtracted incorrectly.

FIGURE 17-8What does the $341.56 bal-

ance represent? Is it always

less than the balance shown

on the statement? Explain

your answer.


Reconciliation Form

YOU CAN EASILYBALANCE YOUR CHECKBOOK

BY FOLLOWING THIS PROCEDURE

FILL IN BELOW AMOUNTS FROM YOUR CHECKBOOK AND BANK STATEMENT

THESE TOTALS REPRESENT THE CORRECT AMOUNT OF MONEY YOU HAVE IN THE BANK AND SHOULD AGREE. DIFFERENCES, IF ANY, SHOULD BE REPORTED TO THE BANK

WITHIN TEN DAYS AFTER THE RECEIPT OF YOUR STATEMENT.

BALANCE SHOWN ON BANK STATEMENT $

ADD DEPOSITSNOT ON STATEMENT $

TOTAL $ SUBTRACT CHECKS ISSUED

BUT NOT ON STATEMENT

$

TOTAL $

BALANCE $

BALANCE SHOWN ON YOUR CHECKBOOK $

ADD ANY DEPOSITS NOT ALREADY ENTERED INCHECKBOOK $

TOTAL $

TOTAL $

BALANCE $

SUBTRACT SERVICECHARGES AND OTHERBANK CHARGES NOT IN CHECKBOOK $


Calculate Adjusted BalanceTo determine the true balance in your account, take the following steps.1. Subtract the total of the outstand-

ing checks from the bank statement balance.

2. Add any deposits in transit to the bal-ance statement balance.

3. Subtract service charges, fees, and auto-matic payments from your checkbook balance.

4. Add any interest earned to your check register balance.At this point, if the balances do not

agree, either you or your bank has made an error. You should check each of the steps again. Then, carefully go over the calculations in your check register. If you do not find an error in your calculations, contact your bank.

After you have reconciled your bank statement, correct any errors that you made on your register. The new balance now agrees with the bank statement. With your account updated, you can write checks on the new balance.

OTHER TYPES OF PAYMENTSOften, you might need to make a payment in a situation when a personal check is not acceptable. Several payment alternatives are available.

Certified ChecksA certified check is a personal check for which a bank has guaranteed payment. The certification is stamped on the face of the check and is signed or initialed by a bank officer.

Cashier’s ChecksA bank usually keeps funds in an account of its own on which it writes its own checks. A cashier’s check is a check that a bank draws on its own funds. A cashier’s check costs the amount of the check plus a service fee. These banker’s checks are more acceptable than the personal checks of an individual whom the payee may not know.

Traveler’s ChecksCarrying a large sum of money when you travel is risky. In addition paying travel-ing expenses with personal checks may be difficult. Traveler’s checks are special forms designed for making payments when away from home. You can buy them at banks, credit unions, and travel bureaus. Traveler’s checks are sold in sev-eral denominations such as $10, $20, $50, and $100. In addition to the value of the checks, a fee of 1 percent may be charged. This means that $100 worth of traveler’s checks will cost $101.

Traveler’s checks require your signature in two places. First, you sign each one when

chec kpoint ››What are causes of differences between the bank statement balance and a per-son’s check register?

chec kpoint ››››What are causes of differences between the bank statement balance and a per-son’s check register?

Identify other pay-ment methods.

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What information is included on your bank statement?



they are bought. Then, when you cash a check or pay for a purchase with it, you sign it again in the presence of the person accepting it. Businesses throughout the world commonly accept traveler’s checks.

Money OrdersA person who does not have a checking account and wants to send a payment through the mail may purchase a money order. A money order is a form of pay-ment that orders the issuing agency to pay the amount printed on the form to another party.

Several types of organizations com-monly sell money orders.• A bank money order is sold by a bank

stating that money is to be paid to a specific person or business.

• A postal money order purchased from the U.S. Post Office can be sent safely through the mail. It can be cashed only after the payee signs it.

• An express money order is issued by various organizations including

traveler’s check companies, travel agencies, and many supermarkets, pharmacies, and convenience stores.

• A telegraphic money order involves buying a message to direct a tele-graph office to pay a sum of money to a certain person or business.If a money order is lost or stolen, the

receipt copy that you receive may be used in making a claim.

chec kpoint ››How does a certified check differ from a cashier’s check?

chec kpoint ››››How does a certified check differ from a cashier’s check?

F Y IF Y IThe Check Clearing for the 21st Century Act (known as Check 21) shortens the processing time of checks using electronic systems. The actual paper check will no longer be processed.

17-3

FPO


1. The first document that must be completed when opening a checking account is thea. deposit slipb. reconciliation statementc. check registerd. signature card

2. A personal check with guaranteed payment is aa. cashier’s checkb. money orderc. certified checkd. traveler’s check

Make Academic Connections3. Math Service charges for Tom Harding’s regular check-

ing account at Second National Bank are based on the bank’s rate schedule:

Minimum Balance Charge0–$199 $6$200–$399 $4$400 and over no charge

During a recent six-month period, Tom’s balances were: April, $148.00; May, $201.97; June, $101.61; July, $418.53; August, $248.29; and September, $154.36.a. How much was Tom’s service charge for each

month?b. What was the total service charge for the six-month

period?


Assessment



C H A P T E R 1 7 Assessment

Business Notes17-1 BANKS AND OTHER FINANCIAL INSTITUTIONS

1. The Federal Reserve System serves member banks by accepting their deposits, lending them money, clearing checks, and providing other services.

2. The main deposit-type institutions are commer-cial banks, savings and loan associations, mutual savings banks, and credit unions. Non-deposit financial institutions include life insurance com-panies, investment companies, consumer finance companies, mortgage companies, check-cashing outlets, and pawnshops.

3. To obtain the best value for your financial services dollar, investigate and compare services offered, safety, convenience, fees and charges, and restrictions.

17-2 FINANCIAL SERVICES AND ELECTRONIC BANKING

4. The most common services offered by financial institutions are accepting deposits, transferring funds, lending money, electronic banking, storing valuables, providing financial advice, and manag-ing trusts.

5. The main types of checking accounts are regular checking accounts, interest-earning checking accounts, and special checking accounts.

6. Electronic banking services include the use of automated teller machines (ATM), point-of-sale transactions, direct deposit, automatic bill pay-ment, online payments, stored value cards and smart cards.

17-3 CHECKS AND PAYMENT METHODS 7. The purpose of an endorsement is to allow the

recipient of the check to cash, deposit, or trans-fer it to someone else. A blank endorsement consists of only the endorser’s name. A full endorsement, also called the special endorse-ment, allows you to transfer a check to another person. A restrictive endorsement limits the use of the check to the purpose given in the endorsement.

8. Reconciling a checking account involves find-ing the differences between the balance on the bank statement and the balance in your checkbook.

9. Other types of payment methods include certified checks, cashier’s checks, traveler’s checks, and money orders.

Communicate Business Concepts1. Some people believe that banks need more regu-

lations and control by the government. Others would like fewer regulations for banks. What are some arguments for each point of view?

2. What factors might affect whether you use a com-mercial bank or a credit union for your banking activities?

3. List the type of banking service that you think each person would be most likely to use. Explain your answer.

a. A person planning to open a fitness centerb. A musical group

c. A wealthy senior citizend. A buyer of a vane. A high school recycling club

4. Jake Olsen has decided to put $1,000 in the bank. List several questions Jake might want to ask before choosing whether to put the money in a checking or a savings account.

5. Cher Alonso often makes deposits and withdrawals at the ATM that she passes on her way to work. She frequently forgets to record these banking activities in her check register and never seems to know how much money she has in the bank. In addition, she




has overdrawn her account twice and has had to pay a fee each time. Can you suggest a plan for Cher to follow that would allow her to use the automatic teller services and still be sure of having an accurate record?

6. Name items that a person might keep in a safe-deposit box.

7. While using a debit card increases the speed and efficiency of business transactions, what effect can this have on a person’s money management skills?

8. Isaac Ahlred has received his bank statement for the month of May. The bank statement shows a balance of $401.19, but his check register shows a balance of only $364.52.

a. What is the most likely reason that the bank balance is larger than Isaac’s?

b. What steps should Isaac take to bring his bal-ances into agreement?

9. While on a trip, the Mendoza family decided to buy furniture, which cost $500. The dealer would not accept a personal check or credit cards. What method could be used to pay for the furniture?

10. “You should shop for the best place to open a checking account as carefully as you shop for the best buy in any product or service.” Give two rea-sons to support this statement.

11. Matt Huffman believes that it is a waste of time to record information on check stubs. “The bank sends me a statement each month. That’s all I need,” he says. How could you convince Matt that he should keep records?

Develop Your Business LanguageMatch the terms listed with the definitions.

12. A bank that offers a full range of financial services.

13. A nationwide banking plan set up by the federal gov-ernment to supervise and regulate member banks.

14. A written notice telling the bank not to pay a cer-tain check.

15. A separate form on which the depositor keeps a record of deposits and checks.

16. A device used for cash machine transactions.

17. A secured area in a bank vault for storing valuables.

18. Written evidence that you received payment or that you transferred your right of receiving pay-ment to someone else.

19. A report sent by the bank to a depositor showing the status of his or her account.

20. A federal agency that protects deposited money in case of the failure of a bank or financial institu-tion that it regulates.

21. A fee a bank charges for handling a checking account.

22. Checks that have not been deducted from the bank statement balance.

23. A not-for-profit financial institution formed by people who have like occupations or live in the same community.

24. A statement showing how the checkbook bal-ance and the bank statement were brought into agreement.

KEY TERMSa. bank reconciliationb. bank statementc. commercial bankd. check registere. credit unionf. debit cardg. endorsementh. Federal Deposit Insurance Corporation (FDIC)i. Federal Reserve Systemj. outstanding checksk. safe-deposit boxl. service chargem. stop payment order

C H A P T E R 1 7 A S S E S S M E N T 445


Linking School and CommunityTalk to people in your community about the financial institutions and financial services they use. Which of these have you learned about in this chapter? Are there

other financial services that you need to learn about? Create a two-paragraph summary of your findings.

Most major banks offer many services to meet the needs of various groups in the economy. Banks often organize their services based on three types of cus-tomers: consumers, small businesses, and corpora-tions and institutions. Consumer services include checking, saving, and loans. Small business services include lines of credit, SBA loans, retirement plans, and cash management. Banks serve commercial banking customers, including corporations and insti-tutions, by servicing new loans, assisting with fund transfers, documenting legal requirements, and sug-gesting risk management strategies. Some banks also offer a variety of global financial services, which may include foreign currency exchange services, payment

services for importers and exporters, and sending money electronically to international locations.

Think Critically1. Locate the web site of a large bank that offers

financial services for several types of customers. Prepare a brief written summary of the features of the bank’s web site.

2. Make a list of the loan services offered to each type of customer.

3. Identify a service that is only offered to com-mercial customers. Write a brief statement explaining the service.

Web Workout

Make Academic Connections25. GEOGRAPHY Locate a map of the United States.

Use this map to show the districts of the Federal Reserve System. Look at several U.S. one dollar bills. Which Federal Reserve Banks are noted on the seal of this currency?

26. CULTURE Research financial services and payment methods commonly used in various countries around the world.

27. COMMUNICATION Collect advertisements and promotional information from several financial institutions. Analyze these materials to deter-mine information that is useful for consumers. Create a poster to highlight and report your findings.

28. HISTORY Investigate the availability of credit unions in your community. Who may join? What services are offered?

29. LAW Check cashing outlets and pawnshops fre-quently charge fees and rates much higher than other financial institutions. Research laws that regulate these financial institutions. Prepare a one-page summary of your findings.

30. ECONOMICS Select various economic measure-ments of the economy, such as interest rates and

consumer prices. Describe how changes in these economic factors might affect the use of financial services.

31. RESEARCH Several states require that banks offer basic checking accounts for low-income consum-ers. In Illinois, Massachusetts, Minnesota, New Jersey, New York, Rhode Island, and Vermont, checking services with minimal fees must be made available for consumers who make a limited number of transactions. These are called life-line accounts. Research the availability of this service in your area.

32. COMMUNICATION Work with a partner to present role-playing situations to describe when you might use a certified check, a cashier’s check, traveler’s checks, and a money order.

33. MATH In October, Tom Jarez received his bank statement that showed a balance of $378.65. The service charge was $3. In examining his state-ment, he found that the following checks were outstanding: No. 31, $7.16; No. 34, $15.10; and No. 35, $9.95. His checkbook balance at the end of the month was $349.44. Reconcile his bank statement.



1 - 1 S A T I S F Y I N G N E E D S A N D W A N T S 447

Decision-Making StrategiesFran and Bill Hamilton recently moved to a new com-munity. They are having trouble deciding whether to use a financial institution near their workplaces or near their home. The Hamiltons have the opportunity to do business with a credit union, a national bank with many branches, a local bank with strong personal service, or a savings and loan association.

34. What factors should the Hamiltons consider when selecting a financial institution?

35. How could Fran and Bill obtain information about the financial institution that would best serve their needs?

Access the web site shown here to find portfolio activities for this chapter. Use the activities to provide tangible evidence of your learning.

Presentation Management Individual EventThis event will assess your use of current desktop technologies and software to prepare and deliver an effective multimedia presentation.

You will design a multimedia presentation. You have 15 minutes for preparation and setup. The pres-entation will last a minimum of 7 minutes and a max-imum of 10 minutes. Up to 5 minutes will be allowed for questions from the judges. The contestant must make effective use of current multimedia technology in the presentation. In preparation of the presenta-tion, contestants should use space, color, and text as design factors. No VCR or laserdisc may be used in the presentation. Charts and other graphics should be used in the presentation. The student is respon-sible for securing a release form from any individual whose name, photograph, and other information is included in the presentation.

Topic: Banks are encouraging customers to do busi-ness using the Internet. They stress the convenience of paying bills online. Many individuals are suspicious of handling their banking business online. Computer fraud and theft of identity are issues that some customers feel override the convenience of banking online.

You must prepare an electronic presentation that encourages customers to bank online. Factors to empha-size include convenience, security, and timeliness. Your presentation should show how the positive aspects out-weigh the negative concerns of banking online.

PERFORMANCE INDICATORS EVALUATED• Demonstrate knowledge of multimedia software

and components.• Demonstrate effective oral communication.• Apply technical skills to create a multimedia

presentation that enhances the oral presentation.

You will be evaluated for your

• Knowledge of the topic• Organized presentation of the topic• Confidence, quality of voice, and eye contact• Relationship of the topic to business strategy

For more detailed information about performance indi-cators, go to the BPA web site.

Think Critically1. List three advantages for banking online.2. List three disadvantages for banking online.3. What can the bank do to make customers more

comfortable with banking online?

C H A P T E R 1 7 A S S E S S M E N T 447

Portfolio Activityschool.cengage.com/business/introtobiz

http://www.bpanet.org/


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