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ECON 212:
Money and Banking
www.cba.edu.kw/malomar
Courses  212
[email protected]
Chapter 1:
• Financial Markets: (stock, bonds, foreign
exchange…)
• Why Study Money, Banking, and Financial Markets?
• Financial institutions: (banks, insurance
companies…)
• How financial markets affect our daily life?
• How financial markets affect our economy?
• The effect on other economies?
• The importance of Money in the economy.
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Why Study Financial Markets?
Markets in which funds are transferred:
(excess funds – shortage of funds)
A- Bonds and Stock markets: channeling funds from
savers to investors, thereby promoting economic
efficiency.
• The bond market and the interest rate:
• A security (financial instrument): a claim on the
issuer’s future income or assets.
• A bond is debt security that promises to make
payments periodically for a specific period of time.
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• Governments and corporations use bonds to finance
(borrow) their activities, therefore, it affects the
interest rate:
• The interest rate is the cost of borrowing funds.
• The effect of the level of interest rate on the
personal level and on the economy.
• B-The Stock Market:
• A stock is a share of ownership in a corporation. It is
a security (claim on earnings and assets)
• Issuing a stock and selling it to finance a firm’s
activity.
• The Foreign Exchange Market:
• To convert funds from one currency to another, we
use the FEM.
• Foreign exchange rate: the price of one country’s
currency in terms of another’s is determined in the
FEM.
• What are the results of fluctuations on the
economy?
• Affects the consumers and the private sector:
• Weaker KD leads to more expensive foreign goods
• Stronger KD means more expensive exports
• 2- Why Study Banking and Financial Institutions?
• Banks and other financial institutions are what make
financial institutions work.
• Without them, cannot move funds from people with
excess funds to people with shortage of funds.
• Allocations towards productive investment
opportunities
• Structure of the Financial System:
• Transactions are made through Financial
Intermediaries: institutions that borrow funds from
people who have excess funds and in turn make
loans to people with shortage of funds.
• B- Banks and other Financial Institutions:
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How they manage their assets and liabilities to
make profits? Why they are regulated? What are the
financial innovations? (ATM, banking online)
• A- Money and Business Cycle:
A positive relation?
• B- Money and Inflation:
Aggregate price level – Inflation rate
A positive relation?
• C- Money and Interest Rate:
A clear relation?
• D- Conduct of Monetary Policy:
Money affects many economic variables, its important
to the wellbeing of the economy and the people.
• Why Study Money and Monetary Policy?
• Money (Money Supply): is anything that is generally
accepted in payment for goods and services or in
the repayment of a debt.
• What is the role/effect of money in the economy?
• Historical view
• Therefore, Monetary policy: the management of
money and interest rates (quantity of money), is
conducted by the central bank.