Introduction to Finance

DISCUSSION QUESTION 2
U.S. paper currency in the form of Federal Reserve Notes is no longer backed by silver 
or gold. Are you concerned?
2.6
Money Market Securities
As noted in Chapter 1, 
Money markets
are the markets where debt securities with maturities 
of one year or less are originated (primary markets) or traded (secondary markets). 
Money 
market securities
are debt instruments or securities with maturities of one year or less. In 
general, money market securities have low default risk and high liquidity. That is, issuers are 
automatic transfer service (ATS) 
accounts 
provide for direct 
deposits to, and payments from, 
checkable deposit accounts
debit cards 
provide for immediate 
direct transfer of deposit amounts
money market securities 
debt 
securities with maturities of one 
year or less
Local Currency: Another Form of Savings and 
Spending Power
The monetary system has evolved from barter of goods and ser-
vices to today’s credit money. Money is a means to facilitate 
exchange. Rather than carpenter Jim trading a chair for new shirts 
sewn by seamstress Jane, Jim and Jane use Federal Reserve Notes 
to buy chairs and shirts from each other.
Some areas of the United States have two monetary systems. 
About 30 cities and towns print their own versions of money used 
for transactions within a locality. One reason communities do so is 
to keep money in the community. For example, local currency cir-
culates in Ithaca, New York; Madison, Wisconsin; Takoma Park, 
Maryland; Detroit, Michigan; Austin, Texas; and Waldo County, 
Maine. Such currency is legal, but it must be printed in a size that 
is smaller than the U.S. $1 bill and issued in denominations of at 
least $1.
Ithaca’s local currency is denominated in Ithaca Hours; each 
Hour is worth about $10, the area’s average hourly wage. Denom-
inations range from one-eighth of an Hour up to two Hours. Since it 
started in 1991, Hours have been earned and spent by 1,500 people 
and are accepted by 300 businesses. Most stores accept them only 
as partial payment for goods; they require the balance to be paid in 
U.S. currency. An advisory board oversees the supply of Hours.
The idea of local currency in the United States is not new; it 
has a long history. You may have experience with traveler’s checks; 
they also are a form of private currency. One purchases traveler’s 
checks with cash, and the checks can then be used as currency 
because they represent this cash. The recognizable name and good 
credit of the issuer (e.g., American Express or Thomas Cook), 
rather than that of the individual making the payment, guarantees 
the value of the checks. Since lost or stolen traveler’s checks can be 
reported, payment stopped, and new checks issued in their place, 
they provide users with a level of safety not available with cash.