PRICING GUIDE

Personal Banking

The One Account is an innovative facility that meets all your banking needs. This single facility, secured by your home, fulfils all the functions of a cheque account, overdraft, personal loan and home loan. It’s convenient, affordable and the modern way to go.
Your banking charges are flexible and depend on how often you use your account and the types of transactions that you do, e.g. electronic vs branch transactions.
With the One Account you pay a fixed monthly package subscription fee of R138.00.
This fee includes your annual FNB Visa Cheque Card and Petrol Card fees, Cheque Books, Lost Card Protection and the administration of your account.
In addition you can:
Select the Electronic Pricing Option, as outlined atthe beginning of this guide under ‘Personal Cheque Accounts’.Or
Select one of three transactional plans with a base monthly fee, which includes a fixed number of transactions.Transactions included are debit orders, account payments, linked account transfers, scheduled payments and transfers, FNB ATM cash withdrawals, prepaid purchases, branch cash withdrawals and cheque and debit card usage, and:
Be able to choose the plan suitable for your usage pattern and also have the flexibility to change to a higher or lower plan when you need to.
Be charged for items in excess of the limit at an additional per item fee.
We are pleased to announce that the following transactions for our Personal account holders are now free effective from 1 June 2007:
ATM Cash Deposits
All Cellphone Banking transactions, including prepaidpurchases, linked account transfers, account payments,as well as statements and balance enquiries
All transactions via Telephone Banking (IVR and SpeechBanking only), including prepaid purchases, linkedaccount transfers, account payments, statements andbalance enquiries
Prepaid purchases via any of FNB’s electronic banking channels, i.e. FNB ATMs, Cellphone Banking, Online and Telephone Banking (IVR and Speech Banking)
ATM Balance enquiries.
This means that you can perform as many of these transactions as you like with no transaction or subscription charges.

Banking, and Financial Markets

To examine how financial markets such as bond, stock and foreign exchange markets work.To examine how financial institutions such as banks and insurance companies work. To examine the role of money in the economy
Financial Markets.Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage of funds
The Bond Market and Interest Rates.A security (financial instrument) is a claim on the issuer’s future income or assets .A bond is a debt security that promises to make payments periodically for a specified period of time
· An interest rate is the cost of borrowing or the price paid for the rental of funds
The Stock Market
Common stock represents a share of ownership in a corporation
A share of stock is a claim on the earnings and assets of the corporation
The Foreign Exchange Market
The foreign exchange market is where funds are converted from one currency into another
The foreign exchange rate is the price of one currency in terms of another currency
The foreign exchange market determines the foreign exchange rate
Banking and Financial Institutions
Financial Intermediaries—institutions that borrow funds from people who have saved and make loans to other people
Banks—institutions that accept deposits and make loans
Other Financial Institutions—insurance companies, finance companies, pension funds, mutual funds and investment banks
Financial Innovation—in particular, the advent of the information age and e-finance
Money and Business Cycles
Evidence suggests that money plays an important role in generating business cycles
Recessions (unemployment) and booms (inflation) affect all of us
Monetary Theory ties changes in the money supply to changes in aggregate economic activity and the price level
Money and Inflation
The aggregate price level is the average price of goods and services in an economy
A continual rise in the price level (inflation) affects all economic players
Data shows a connection between the money supply and the price level
Money and Interest Rates
Interest rates are the price of money
Prior to 1980, the rate of money growth and the interest rate on long-term Treasure bonds were closely tied
Since then, the relationship is less clear but still an important determinant of interest rates
Monetary and Fiscal Policy
· Monetary policy is the management of the money supply and interest rates
o Conducted in the U.S. by the Federal Reserve Bank (Fed)
· Fiscal policy is government spending and taxation
o Budget deficit is the excess of expenditures over revenues for a particular year
o Budget surplus is the excess of revenues over expenditures for a particular year
o Any deficit must be financed by borrowing
o Conducted by the Legislative and executive branches of the Federal government
How We Will Study Money, Banking, and Financial Markets
· A simplified approach to the demand for assets
· The concept of equilibrium
· Basic supply and demand to explain behavior
· in financial markets
· The search for profits
· An approach to financial structure based on transaction costs and asymmetric information
· Aggregate supply and demand analysis

THE THREE TOOLS OF MONETARY POLICY

(1) Changes in banks’ required reserve ratio (RRR) — The required reserve ratio (RRR) is now 10% of banks’ checking deposits. — It was lowered from 12% in early 1990's. — The RRR on savings account, CD’s, and money-market deposit accounts is zero. — Changes in the RRR have large effects on money supply: increasing RRR causes a decrease in banks’ excess reserves and a decrease in the money multiplier (1/RRR), so the money supply decreases by a lot. –> Because this tool’s effects are so powerful as to preclude “fine tuning” (making small changes in monetary policy as needed), it is rarely used.
(2) Changes in the discount rate – The Fed controls the discount rate, i.e. the interest rate at which it loans money to banks. – When the Fed lowers the discount rate, bank reserves will increase, because banks will take advantage of the lower rates by borrowing more reserves from the Fed (and then loaning those reserves out). – Although the Fed is officially a “lender of last resort” to banks, to be used only when banks are in desperate situations, when it lowers the discount rate it is generally signaling a relaxation of that rule, i.e. an increased willingness to make ordinary loans to banks in order to expand the volume of money and credit.
* (3) Open market operations (OMO) — In OMO, the Fed buys or sells bonds, usually from the banks, in order to affect the level of bank reserves and the federal funds rate (the interest rate at which commercial banks loan each other money, usually in the form of reserves, on an overnight basis). In turn, the money supply and other interest rates will be affected, too. -- OMO is the Fed’s most important and most-used policy tool. – How OMO works: when the Fed buys or sells securities (government bonds) from banks, it makes or collects the payment for those bonds by crediting or debiting the banks’ reserve accounts at the Fed and thereby changing the level of bank reserves, which changes the money supply in the same direction. These operations are carried out solely by the regional Fed bank of New York. -- Expansionary monetary policy calls for open-market purchases: Fed buys securities, pays by crediting banks’ reserve accounts --> money supply expands, interest rates fall. -- Contractionary monetary policy: open-market sales:

Fed sells securities, collects payment by debiting banks’ reserve accounts --> money supply shrinks, interest rates rise. -- The Fed uses OMO to affect the federal funds rate. Open-market purchases and sales by the Fed affect the federal funds rate because they affect the supply of bank reserves. An increase in the supply of bank reserves (expansionary OMO) reduces the federal funds rate; a decrease in the supply of bank reserves (contractionary OMO) increases the federal funds rate. -- Imagine (or, better yet, draw) a supply-and-demand diagram of the federal funds market, with the quantity of bank reserves on the horizontal axis, the interest rate (price) on borrowed bank reserves on the vertical axis, an upward-sloping supply curve, and a downward sloping demand curve. If the Fed makes an open-market purchase of a security from a bank, for example, it pays for the security by crediting the bank’s reserve account at the Fed; thus it is adding to the total supply of reserves. That addition corresponds to an outward shift of the supply curve of federal funds, which will cause the interest rate on reserves (i.e., the federal funds rate, or the “price” of borrowing reserves) to fall.

II. AN EXAMPLE OF MULTIPLE DEPOSIT CREATION
Let us consider an example of an expansionary monetary policy move by the Fed. Suppose that the Fed conducts expansionary OMO by making an open-market purchase of securities. Specifically, the Fed buys $100 in securities from the First National Bank. (The required reserve ratio, RRR, for checking deposits is 10%. We will assume that First National and all other banks initially have zero excess reserves. Also assume that all loans get redeposited into checking accounts at First National.) The Fed pays for the securities by crediting First National’s reserve account at the Fed with $100. We would like to know: What is the ultimate change in the money supply, after the entire chain of deposit creation has run its course?
Fast-forwarding a bit, we can answer that question right now, because we know the initial change in reserves (+$100) and can compute the money multiplier (1/RRR = 1/.10 = 10). The ultimate change in the money supply will be: {increase in money supply} = {increase in reserves} * {money multiplier} = ($100) * (10) = $1000.
To see just how we got from an initial increase in reserves of $100 to a cumulative increase in the money supply of $1000, we can look at the changes in First National’s balance sheet. The initial change in First National’s balance sheet is:

THE THREE USES OF MONEY

We have already gone over how money, as macroeconomists use the term, means something different from "income" or "wealth." Money is defined as anything that is generally accepted as payment or, in a word, as liquidity. Since having liquidity is a much smaller priority for most people than earning a high income or becoming wealthy is, we need to figure out what it is that money is good for. Economists have identified three main functions of money: 1. Medium of exchange - money "greases the wheels of commerce," by making it much easier for people to exchange the goods and services they produce for the goods and services that they want.
Having a generally accepted currency eliminates the need for barter (trading), and makes the volume of transactions a lot larger than it would otherwise be. 2. Unit of account - having a standard monetary unit, like the dollar, allows us to price individual goods and services, putting a single price on each item instead of having to compute a different exchange price for every different pair of commodities (e.g., 1 cup of coffee = 2 newspapers = 6 minutes of office work as a temp = 3 minutes of my teaching services). 3. Store of value - money has some use as an asset, because it holds its nominal value over time and, unlike stocks or bonds, its value does not fluctuate from day to day. Unlike stocks or bonds, there is no risk that dollars will suddenly become worthless. In sum, money is a virtually riskless asset. It is also a very liquid (convertible into cash; spendable) asset, which is another desirable quality.

II. MONEY SUPPLY, MONEY DEMAND, AND THE EQUILIBRIUM INTEREST RATE
Defn. INTEREST RATE -- the annual interest payment on a loan expressed as a % of the loan. It is equal to the amount of interest received per year divided by the amount of the loan. It is the "price" of money, or rather the price of borrowing someone else's money. -- Ex.: If you borrow $100 and must pay $105, int. rate = (5%). (We don't count the repayment of the original $100, which is called the principal on the loan. The interest rate is the net payment you make; we say that the gross interest rate = 105%, but that usage is uncommon.) -- Which interest rate are we talking about here? There are many interest rates in the economy or even at a single bank. But, they do tend to move together and, for the sake of simplicity, we will talk as if there is only one interest rate ("the interest rate").
One of the best ways to understand movements in interest rates is through the money market - a representation of the supply and demand of money and the resulting equilibrium point. So the money market is just another supply-and-demand diagram, with the price of money on the vertical axis, the quantity of money on the horizontal axis, and a downward-sloping money-demand curve. - [Refer to Figure 13-2, panel (c), on p. 273 of McConnell's textbook.] - The only variations on the usual supply-and-diagram are that:
the supply curve of money is perfectly vertical, instead of upward-sloping, because the supply of money is fixed by the Fed without regard to the interest rate;
the "price of money" is not a dollar amount but rather is the interest rate. The interest rate is the opportunity cost of holding money, since money pays no interest and alternative assets like bonds, savings accounts, and CD's do pay interest. When you hold money, you are giving up the interest that you could be receiving if that money were in a bond or savings account or CD. The higher the interest rate, the more interest you lose out on by holding money, so you'll carry less money and keep more in the bank. Likewise, when the interest rate is very low, you don't lose much by carrying a lot of money, so you will carry (or demand) more money. The quantity of money demanded is a negative function of the interest rate (i); the money demand curve slopes downward. Q: Considering that money earns a lower rate of return (0%) than virtually every other asset there is, why hold money at all? Even when i is low, as long as it's greater than 0, holding money means that you are losing out on the interest that you could be earning on bonds, CDs (certificates of deposit), or savings accounts, not to mention the positive returns you could be earning on things like stocks or real estate.

A: There are at least four good MOTIVES FOR HOLDING MONEY. They are:
(1.) Transactions demand (the most obvious motive) -- We need it to buy things, since money is the universal medium of exchange. -- Corollary: the more you earn, the more money you'll demand.
-After a Mets game in the mid-1980s, it was reported that pitcher Ron Darling's wife lost purse at the game, and that the Darlings were upset because the purse had over $400 of cash in it. Why would she have been carrying so much money in the first place? (Probably because her husband was a multimillionaire...) -- The greater your income and wealth, the greater your consumption will be, hence the greater your transactions demand for money will be.
(2.) Precautionary demand ("save it for a rainy day") -- Ex.: Say I normally spend ~$20/day --> then if I go to the bank every 5 days, I should withdraw $100 every time, right? Not necessarily -- even though $100 is what I'd need on average, I might have some abnormal expenses -- unexpected emergencies, bills, great sales, etc. So I might withdraw more than $100. -- Money is the most liquid of assets, thus you might want to set some aside to be ready for any emergencies that might arise.
(3.) Avoid transactions costs of bank trips (ATM fees, time and inconvenience of trips to the bank). Because of those costs, it is often desirable to make very large withdrawals of cash when you visit the bank, so that you won't have to visit the bank again for a long while. The larger your average bank withdrawal, the greater your money demand. Putting those two observations together, money demand will be greater when the transactions costs of bank trips are high.
(4.) Asset demand - money is a riskless asset and is extremely liquid. Thus, money is somewhat useful as a store of value.
Despite all of these good reasons to hold money, it's still true that money earns a lower rate of return than bonds and other interest-bearing assets, so people will try to economize on their holdings of money somewhat, by keeping only small amounts of money as cash or in their checking accounts, while keeping the rest of their unspent income in bonds or other assets that earn competitive rates of interest. People will hold even less money when the interest rate is high - in other words, the demand curve for money slopes downward.
The intersection of the money demand and (vertical) money supply curves is the equilibrium in the money market and determines the equilibrium interest rate. (The equilibrium quantity of money, by the way, is always equal to the supply of money -- since the money supply curve is vertical, the equilibrium quantity of money will not be affected by shifts in the demand curve for money.)