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Why Study Money, 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 | Chapter 1 Why Study Money, Banking, and Financial Markets? Why Study Money, 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 (Ex: ATM) 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 . | Chapter 1 Why Study Money, Banking, and Financial Markets? Why Study Money, 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 .