Deck 20: Money, Financial Institutions, and the Federal Reservebonus

Question 1

How is the government going to obtain the funds it needs to pay off the national debt and other expenditures? What do you think will be the long-term effect of the stimulus package that created much of this debt?

Answer 1

The case describes about a situation where an individual made a withdrawal at a bank and the teller counts the money and gave the money to the individual. However, on counting the amount again, the individual realizes that the teller has given $320 instead of $300. On informing the error the teller denied the mistake. The individual is upset because eof the attitude of the teller at the bank.
The individual may consider the mistake committed by the teller as a human error. But he must tell the teller to cross check the amount in her drawer and amount she is handing over to customer, twice before carrying the transaction. Her slightest mistake may cost her job. Also, she must be told to change her adamant attitude towards customers because great customer service helps in gaining positive reputation. As she is representing a bank, good customer service is an integral part in winning customer trust and loyalty. If she continues her adamant attitude she may face complaints from customers and might face some action taken against her.
In the given situation, the individual must follow ethical behavior. He must return the excess money to the teller. The individual must tell the teller to count the money in her drawer and cross check the amount before handing over to the customer. If the teller commits same mistake again and again, she might lose her job.

Question 2

The Banking Crisis Goes Global
The banking crisis has become a global phenomenon, even in countries that appeared to be doing well, such as China. Even though the Chinese government could force banks to make loans, it is reluctant to do so now that capitalism seems to be working. Because banks began holding on to their money, some 67,000 small businesses in China went into bankruptcy in the first half of 2008. Even some larger state-owned businesses felt the effects of the crisis.

Pakistan recently went to China to borrow funds but could not get them and turned to the International Monetary Fund (IMF) for help. Several Eastern and Central European countries and former Soviet republics are also in trouble. The IMF has agreed to lend Ukraine over $16 billion and Hungary over $15 billion. Turkey could need as much as $90 billion. Other countries such as Greece and Spain were in similar straits. Even oilrich Bahrain suffered from the crisis.
Should the IMF and World Bank continue to give funds to countries suffering financial crises? Where do those funds come from? Should the United States continue to help provide money for such loans as it has pledged to do?

Answer 2

The given case descries about banking crisis which has become a global phenomenon. It cites examples of countries that seem to be doing well but in the crisis of 2008, the small banks in the country went bankrupt. Several countries are turning to international organizations like International Monetary Fund (IMF) and World Bank for help.
International Monetary Fund (IMF) is an international finance institution, which was established to promote cooperative monetary policies that would help in stabilizing exchange of a national currency for another. The organization has around 185 countries as its members who allow their money to be exchanged freely for foreign currency. The member countries keep the IMF informed about their monetary policies, changes incorporated in those policies. These countries also modify their monetary policies on the advice of IMF. It is not a lending institution primarily.
World Bank is responsible for financing economic development. The bank lends money to less developed nations in order to develop their productivity, living standards and quality of life.
As per the given facts, the IMF and World Bank must continue to provide funds to countries going through financial difficulties as both the institutions were set up with an aim to help to countries survive economic threats and hardships.
The IMF has the goal to maintain monetary system globally so that it helps in enhancing world trade, economic growth and financial stability for all nations. The funds for IMF and World Bank come from developed nations as well as member nations and quota subscription paid by member countries.
After studying the facts, America must continue to provide money for loans because it has pledged so and to prevent the loss of lives, reduce impact of economic instability and hardships suffered by other nations and also help those nations to grow and perform better.

Question 3

What can you do to protect your investments against long-term inflation? What, if anything, can be done to make money during a deflationary period?

Answer 3

A traditional hedge against inflation has been real estate investment. In light of the real estate bubble and bust of 2007-2009, real estate may no longer be the perfect investment. In the long run, the U.S. stock market has outpaced inflation. That may be the best way to protect your investments in today's environment.

Question 4

What have you learned from this video about the value of the U.S. dollar? Is it as "good as gold?"