Examples of check kiting in the following topics:
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- Float is most apparent in the time delay between a check being written and the funds to cover that check being deducted from the payer's account.
- In check clearing, bank float and customer float are present.
- Before electronic check clearing, bad weather or communication problems often caused float to significantly increase, as the clearing of checks was delayed.
- Another aspect of float time is its use to defraud, commonly known as check kiting.
- Some methods for accomplishing this include mailing checks far away from those waiting to receive payment, disbursing checks from a remote bank, or purchasing with credit cards.
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- The Fed has the authority to clear checks, and the check clearing process can cause bank reserves and the money supply to fluctuate through the Federal Reserve float.
- Computer firm deposits the check in its bank account.
- Subsequently, its bank sends the check to the Fed because the Fed can clear the check between your bank and the computer firm's bank.
- Your check for $1,000 no longer exists in two places.
- Check clearing process is a long-drawn-out process because if you write a check for $100 and
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- Third payment system, a check, is credit money tied to a person's checking account.
- Once sellers accept a check, they present the check to a bank for payment.
- Consequently, checks have three benefits.
- However, checks create two problems.
- First, the financial institution charges fees for using checks, or the check writers abuse their accounts and write fraudulent checks for amounts that exceed their account balances.
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- Checking and savings accounts are very popular in the United States.
- They make payments by using checks that transfer money from one bank and to another bank.
- Then checking accounts become one the most important deposit accounts.
- These accounts earn interest and do not allow check-writing privileges.
- However, savings accounts have fewer services than checking accounts.
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- Calculate the change in the M1 definition of the money supply if a person deposits $1,000 in cash into his checking account.
- Compute the change in the M1 definition of the money supply if a person withdraws $5,000 in cash from his checking account.
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- For example, you buy $500 in clothes from an internet store and send a check to the seller.
- Next, the seller deposits the check into his or her bank account.
- Seller's bank sends information about the check to the clearinghouse and the clearinghouse checks with your bank.
- Your bank checks your balance ensuring you have enough funds in the account to pay the check.
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- The Fed buys the T-bill by using a Fed check.
- When the bank sends the check to the Fed, the Fed increases the reserves at your bank.
- A Fed check is not backed by money per se.
- As the Fed clears its own check, it adds numbers to a bank's accounting books.
- For the second example, the Fed buys one T-bill from you for $10,000, using a Fed check.
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- You take the Fed check and deposit the whole $10,000 at your bank into your checking account.
- Bank sends your friend a check for $9,000.
- Your friend takes this check to a car dealership and buys a car.
- Car dealer deposits this check at his bank, and we record this transaction below:
- Construction company receives a check for $8,100 and deposits this check in its bank.
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- For instance, the students learn how the Fed clears a check between two banks.
- Items in the Process of Collection (CIPC) are assets that arise from the Fed's check clearing process, and it equaled $138 million in 2012.
- We show the check clearing process in this chapter.
- Then the Treasury Department writes checks on its Fed account.
- We explain the check clearing process in this chapter.
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