Why Study Money, Banking, and Financial Markets? 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 Business Cycles more money, more growing economy Inflation more money, higher inflation Interest Rate 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.