# Understanding Money and Financial Institutions

## Introduction


### Learning Outcomes

After reading this chapter, you should be able to answer these questions:
1. What is money, what are its characteristics and functions, and what are the three parts of the U.S. money supply?
2. How does the Federal Reserve manage the money supply?
3. What are the key financial institutions, and what role do they play in the process of financial intermediation?
4. How does the Federal Deposit Insurance Corporation (FDIC) protect depositors’ funds?
5. What roles do U.S. banks play in the international marketplace?
6. What trends are reshaping financial institutions?
Advanced technology, globalization of markets, and the relaxation of regulatory restrictions continue to accelerate the pace of change in the financial services industry. These changes are giving businesses and consumers new options for conducting their financial transactions. The competitive landscape for financial institutions is also changing, creating new ways for these firms to increase their market share and boost profits.
This chapter focuses on the role of financial institutions in U.S. and international economies. It discusses different types of financial institutions, how they are set up and how they function internally, and government oversight of their operations. Because financial institutions connect people with money, this chapter begins with a discussion of money, its characteristics and functions, and the components of the U.S. money supply. Next, it explains the role of the Federal Reserve System in managing the money supply. Then it describes different types of financial institutions and their services and the organizations that insure customer deposits. The chapter ends with a discussion of international banking and trends in financial institutions.