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Chapter 1
Why Study Money, Banking, and
Financial Markets?
Financial System:
Are we involved in the financial system in our daily life?
The Five Players in the Financial
System:
1. Money
2. Financial Instruments
3. Financial Markets
4. Financial Institutions
5. Central Banks
Why Study Financial Markets?
1. Channel funds from savers to investors, thereby
promoting economic efficiency
2. Affect personal wealth and behavior of business firms
Why Study Banking and Financial
Institutions?
1. Financial Intermediation:
Helps get funds from savers to investors
2. Banks and Money Supply:
Crucial role in creation of money
Why Study Money and Monetary Policy?
Influence on business cycles, inflation, and interest rates
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Business Cycles
Inflation
Interest Rate
more money, more growing
economy
more money, higher inflation
high growth of money---because of
low interest rate
Examples of the Financial Market;
(1) Bond Market
- Corporations and Gov’s are able to borrow to finance
their activities.
- Bond is a dept security that promises to make payments
on the period basis at a specific period of time.
(2) Stock Exchange Market
- Claims on the earnings of corporations are traded
- Stock is a share of ownership in a corporation.