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of the nation’s 7,000 credit unions have either closed or merged within other larger organizations. How-
ever, many of the ways credit unions have changed can be attributed to the same hardships that have
rocked the rest of the banking industry. Low interest rates, higher instances of loan delinquencies, and a
generally slow economy have caused credit unions to go searching for revenue in many of the same plac-
es as their larger rivals.
For instance, while some consumers might appreciate free checking, it’s not exactly relevant to
today’s debit card wielding ATM patron. In fact, most credit unions don’t offer established ATMs to their
customers, forcing them to incur withdrawal fees from “foreign” machines owned by other banks. Fur-
thermore, credit unions are also stealthily raising the few fees they do exact on customers, such as for
overdrafts. Perhaps most telling, though, is the fact that 28 percent of credit unions now charge a monthly
service fee in order to retain membership. Only time will tell if credit unions can keep their courteous,
customer-friendly edge even as their other advantages begin to dwindle.v
lecture enhancer 20-9
MORE BANKS TEAM UP WITH WESTERN UNION
Recent federal banking regulations have placed limits on the fees that financial institutions can
charge for things like overdrafts and credit card transactions. Although this has been good news for con-
sumers and merchants, the new rules have reduced revenue streams for banks across the country. As a
result, many institutions are looking to make up the difference through additional sources of income, such
as Western Union branches.
The more than 160-year-old money-wiring firm sells its services to 52,000 locations throughout
the country. However, for years Western Union has been a more common sight in check-cashing and
payday-loan stores than traditional banks. That’s because many people who use the service either don’t
have a bank account themselves or are sending money to a person without one. With seemingly no stake
in the money-wiring game, banks didn’t mind missing out on the additional fees Western Union could
have brought in. This is despite customers like Carolyn Burgess, a Mississippi resident who regularly
wires money to a family member with no bank account. In order to make the transaction, Burgess would
make a withdrawal at her local Regions branch and then drive to a grocery store with a Western Union
kiosk.
But Burgess doesn’t need to extend her errands any longer: Regions began rolling out Western
Union services across its 16-state range in 2011. Executives at the company estimate that 60 percent of
the more than 440,000 people who have taken advantage of the service are new to the bank. Efforts like
Regions’ have seen the number of Western Union branches in banks grow from about 2,500 locations five
years ago to more than 10,000 today. Managing a money-wiring service is no simple task, however.
Western Union operators must be sure that they aren’t enabling any illegal transfers. In 2010, authorities
accused the company of not doing enough to counter money laundering on the Southwest U.S.-Mexico
border. Western Union was required to upgrade its compliance programs as a result, although the risk for
fraud remains strong at any money-wiring establishment.vi
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lecture enhancer 20-10
THE UNPREDICTABLE BITCOIN’S VALUE SEESAW
With the value of the dollar at an almost historical low, many people are looking for other ways to
make their money work for them. While some turn to traditional interest-accruing ventures like bonds and mu-
tual funds, other Internet-inclined investors are putting their money on Bitcoins, a form of digital currency cre-
ated in 2008. The electronic coinage is accepted at online operations ranging from tech savvy retailers to shady
gambling sites. But most Bitcoin fortunes aren’t meant for spending. Instead, they’re held on to until the value
of the virtual currency goes up.
So just how much is a Bitcoin worth? Like all currency, it depends on when you ask that question.
Even the value of the dollar can fluctuate slightly from day to day depending on a number of factors. In
Bitcoin’s case, however, there’s no such thing as a “slight” fluctuation. The value of a Bitcoin peaked at $32 in
early June 2011 only to stumble by 68 percent months later, eventually bottoming out at $2 and languishing in
that region for years. The most drastic rise and fall occurred in April 2013, however. By the beginning of the
year, Bitcoin had returned to its 2011 high only to drop again by February. Then everything went crazy: prices
climbed to $140 by April and finally peaked at $266 in the middle of the month. Bitcoiners didn’t have much
time to celebrate, though, because within a day the currency’s value had plummeted 61 percent.
Bitcoin’s volatility stems from its decentralized valuation system. Prices for the currency are based on
demand as transactions run across a peer-to-peer network of hundreds of personal computers. Rather than
managing Bitcoins from a central bank like other currencies, an arsenal of algorithms constantly recalculates
the currency’s value equivalent to the dollar. Bitcoin’s unpredictability has given skeptics plenty of reasons to
question its practicality. Indeed, the speculative nature of many Bitcoin purchases effectively undermines the
currency as a useful method for spending money. After all, who in their right mind would spend more than
$100 for a single unit of a niche currency? Bitcoins have also faced tighter government scrutiny this year in
order to prevent the currency from being used for money laundering. In the end, if the Bitcoin achieves a mod-
icum of stability then it could possibly become more than just a curious financial case study for the digital
age.vii
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critical
thinking exercises
Name: ___________________________
Date: ___________________________
critical thinking exercise 20-1
BARTERING: BUYING A PAIR OF JEANS
As the text notes, bartering was used rather than money in early commerce. In fact, countries suf-
fering from hyperinflation have resorted to bartering in more recent years. Let’s see how cumbersome
bartering can become and how difficult it is to get your needs met in a barter economy.
Suppose you live in a barter economy and you need to buy pair of jeans. Listed below are six
people who live in your community. Each person has goods or services that he or she can trade to satisfy
a particular need. You must figure out how to barter so that you get that pair of jeans. Be sure to indicate
how much of each good or service is traded. Does everyone get his or her need met? Why? (This exercise
is more fun if it is done in groups, with each person playing a specific role.)
You:
Have: Artistic talent and advertising experience
Need: Pair of jeans
Great Value Store:
Has: Pair of jeans
Needs: Shelves stocked
Bubbles and Bows:
Has: Facilities to clean and mend clothes
Needs: Flyers to advertise opening of new store
Sly Sliverbottom:
Has: Two tickets to the Falling Rock concert
Needs: Music video by the Royal Paynes
Mac Cannick:
Has: A gas station
Needs: Clothes cleaned
Clark Clerk:
Has: Time and ability to stock shelves
Needs: Gas for his pickup truck
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notes on critical thinking exercise 20-1
Students must decide how much of each good or service (represented by the Xs below) are in-
volved in each transaction. Students will disagree on the worth of each good or service. This disagreement
is one of the problems of a barter economy.
The solution is:
First, you must trade X number of flyers for X loads of clothes cleaning with Bubbles and Bows.
Second, you must trade X loads of clothes cleaning for X gallons of gas with Mac Cannick.
Third, you must trade X gallons of gas for X hours of stock shelving with Clark Clerk.
Fourth, you must trade X hours of stock shelving for X pairs of jeans with Great Value Store.
Sly Sliverbottom doesn’t seem to get his video since no one needs his concert tickets. That’s one
of the problems in a barter economy: some people have nothing to trade.
This exercise emphasizes how awkward and cumbersome a barter economy is and how important
money is in facilitating exchange of goods and services. Ask your students to identify the problems of a
barter economy.
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
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Name: ___________________________
Date: ___________________________
critical thinking exercise 20-2
TEST YOUR KNOWLEDGE OF MONEY
Answer the following questions about money.
1. Where is the U.S. stock of gold and silver bullion stored? What is the value of these assets?
2. Whose signature appears on U.S. currency?
3. What is the largest denomination bill issued today?
4. When is it legal to reproduce a U.S. dollar note?
5. How many commercial banks are there in the United States?
Match the portrait that appears on the front of U.S. currency with the denomination of that bill.
_______ 6. Benjamin Franklin
_______ 7. Ulysses S. Grant
_______ 8. Andrew Jackson
_______ 9. George Washington
_______ 10. Abraham Lincoln
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
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_______ 11. Thomas Jefferson
_______ 12. Alexander Hamilton
a. $1
b. $2
c. $5
d. $10
e. $20
f. $50
g. $100
Match the name of the currency with the country that issues it.
_______ 13. Dollar
_______ 14. Rupee
_______ 15. Peso
_______ 16. Dinar
_______ 17. Pound
_______ 18. Baht
_______ 19. Rand
_______ 20. Franc
_______ 21. Yen
_______ 22. Krona
a. Sweden
b. Japan
c. South Africa
d. Iraq
e. New Zealand
f. Thailand
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g. Pakistan
h. United Kingdom
i. Switzerland
j Argentina
Mark each statement either true or false.
_______ 23. A retailer is required by law to accept any U.S. coins in payment for goods.
_______ 24. U.S. dollars are backed by the country’s gold and silver assets.
_______ 24. U.S. quarters and dimes have no silver content.
_______ 26. The U.S. government plans to recall all currency and replace it with the newly designed
currency.
_______ 27. It costs the U.S. Mint more than 1cent to mint a penny.
_______ 28. The $1 bill makes up 20% of the currency printed by the U.S. Mint.
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notes on critical thinking exercise 20-2
1. Where is the U.S. stock of gold and silver bullion stored? What is the value of these assets?
The U.S. stock of gold and silver is stored at Fort Knox, Kentucky. The second part of this ques-
tion is harder to answer. As of 2008, the United States had 147.7 million ounces of bullion stored at Fort
2. Whose signature appears on U.S. currency?
3. What is the largest denomination bill issued today?
4. When is it legal to reproduce a U.S. dollar note?
5. How many commercial banks are there in the United States?
In 2005, there were 7,527 commercial banks.
Matching
Denominations:
6. Benjamin Franklin—g ($100)