Topic 8

The eighth and final main real-life topic is the modern banking system.

    First of all, the Fractional Reserve System = Ms > MB. Reserves should be thought of as amounts of deposits (a fractional value) that banks keep within other banks. Another important lesson to note is the RRR: Required Reserve Ratio is a fraction of deposits that banks are required, by law, to keep as reserves. This is all decided by the Central Bank of the country, and the remainder of this is loaned out. Below is a real-life example of how this continuous process works (it may continue to go on and on, but the following example is involving a total of 3 banks):

Speaking of the Central Bank, there are 5 noteworthy points about them:

1) They are the ultimate money authority.

2) They are in charge of monetary policy.

3) They are known as the Bank of Banks.

4) They regulate and monitor the whole banking system.

5) In the United States, they are known as The Fed. 

This is all very interesting, and it is important to know how this system works whether you work in a field relating to banking or not. Banking is an important concept to be familiar with as it can help you and me with everyday conversation in life and in the business world.