part Chapter © 2009 The McGraw-Hill Companies, Inc. All rights reserved. 1 McGraw-Hill Money, Financial Institutions, and Securities Markets 1 Chapter 13

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 2 McGraw-Hill 1.Understand the importance of money and its basic characteristics. 2.Describe how the Federal Reserve controls the money supply. 3.Explain the functions of the Federal Reserve. 4.Understand how securities markets work. 5.Explain the differences among stocks, bonds, and mutual funds. Learning Objectives

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 3 McGraw-Hill Barter Coins –Portable –Divisible –Stable –Durable –Unique Simplify exchanges e-cash The Importance of Money

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 4 McGraw-Hill Government control Money classification: –M1 –M2 –M3 Inflation Deflation Recession Money Supply

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 5 McGraw-Hill Board of Governors Monetary policies Federal Open Market Committee (FOMC) Reserve requirement –One of the Fed’s most powerful tools Open-market operations –Circulation The discount rate –Banker’s bank Basics about the Federal Reserve

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 6 McGraw-Hill Falling dollar Rising dollar Demand for dollars Global Exchange of Money

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 7 McGraw-Hill The Function of Securities Markets New York Stock Exchange (NYSE) NASDAQ Primary market –IPO Secondary market “Going public” Debt and Equity financing Investment bankers Securities and Exchange Commission (SEC)

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 8 McGraw-Hill Bonds Definition Maturity date Advantages Disadvantages Government can issue bonds as well

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 9 McGraw-Hill Preferred stock –No voting rights –Callable –Convertible Common stock –Holders can vote –Share in profit –Preemptive right –Financing Stock certificate Par value Dividends Advantages and Disadvantages Stocks

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 10 McGraw-Hill Mutual Funds Investors can take part in ownership Best way to start Index fund Diversification Stock Exchanges NYSE Over-the-counter market Securities exchanges regulation –Protects investors –SEC –Insider trading

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 11 McGraw-Hill Investing in Securities Not difficult Stockbroker Important to follow stocks Considerations –Investment risks –Yield –Duration –Liquidity –Tax consequences

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 12 McGraw-Hill Reading Stock Quotes

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 13 McGraw-Hill Reading Mutual Fund Quotes

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 14 McGraw-Hill Reading Bond Quotes