Bank dollar is simply a banks iou a promise to pay

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Bank dollar is simply a bank’s IOU- a promise to pay one dollar of definitive money on demand Payment in bank dollars often has lower transaction cost than definitive money Number of ways to transfer ownership of a deposit to a recipient Checks: Way to transfer ownership of a deposit. Banks can either present check to one another for immediate cash payment which is quick and simple but inconvenient and is only worthwhile for large sums of money More logical way- bank takes check and signs it over (endorses it) to the other bank, converting it into an order to pay the other bank The Check Clearing System- Small banks usually don’t process checks- they send them to a correspondent bank, or the fed. Checks are sorted and cleared through local clearinghouse At clearing house banks keep track of how much they owe each other bank. Claims are then netted and make claim in “clearing house funds” which are settled in fed funds on the following day Physical transportation of paper check is costly – why electronically deposited checks are becoming more popular Check Enhancements Caution with checks- usually require credit because the bank doesn’t want the check to bounce Way around it is check guarantee card- obliges bank to honor check (rare in US)
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o Another way is overdraft- credit that is automatically drawn on if there’s insufficient funds in customer’s deposits Special checks- Certified check- check written on bank itself Money order- an order of payment from a nonbank issuer Traveler’s check- a form of guaranteed check or insured private banknote (issued by banks and financial institutions) o Usually pay issuer in advance Giro Payments- Giro payment- and order to pay, presented to the payer’s bank by the payer Unlike check Giro goes directly to his own bank, payer’s bank then pays the recipient’s bank (whereas check goes to receiver) Can’t bounce- payer’s bank won’t except order unless enough funds Credit Cards: The Store Credit Card- A credit card that activates a line of credit from a retailer Gave retailers advantage because business could support credit department to check credit and process payments, also got pooling Third-Party card Solution to small retailers- activates line of credit from a third-party lender First type was Travel and entertainment cards o Limited geographically at first because interstate banking restrictions The Four-Party Card Solution to acceptability- bank credit card, payments involve both the issuing bank and the recipient bank Secured credit card- people of high risk who don’t qualify for normal credit card can get this, it is backed by collateral for a line of credit Delayed Debit Cards Delayed debit card- card used to make debit payments- like check and Giro payment Distinguished from electronic debit card Involves no credit, debits purchase from purchaser’s checking deposit as soon as the slip clears through the interchange Overcomes problems of payment by check or Giro, no bad check problem- however can be used for unplanned purchases Electronic Payments
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  • Fall '19
  • Credit card, Cheque, Fed

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