1. The Economics of Money, Banking and Financial Markets.
Money and Banking
( BE 220 )
The Economics of Money, Banking and Financial Markets.
By: Frederic S. Mishkin

2. Financial Market is:
Complex
Comprises many different types of private
financial institutions As :
Banks
Insurance companies
Mutual funds
Finance companies
Investment banks
All regulated by governments
Individual go to financial intermediaries

3. Why?
Financial intermediaries are important to well-functioning financial markets?
Extend credit to one party but not to another?
Write complicated legal documents?
They are most regulated business in the economy?

4. Banks Are financial institutions that: Accept deposits Make loans
Commercial banks
Savings and loan associations
Mutual savings banks
Credit unions

5. A person to buy a car, house... He goes to the bank
Most people keep portion of their wealth in banks
Banks are largest financial intermediaries in our economy
Insurance companies also
Finance companies also

6. Financial innovation:
In old days…
We deal with human to cash money or ask about
our account balance...
Now …
we deal with ATM ( Auto Teller Machines )
We have new means of delivering new financial services (E-Finance )

7. Money:
Money Supply:
Any thing is accepted in payments for goods or services. Or repayment of debts.

8. Money and business cycles:
total production of goods and services in USA decreased
Unemployment rate increased to 10%
After 1982 the economy began to expand rapidly
1989 unemployment rate decline to 5%
1990 expansion ended
Unemployment raised to 7%
Why these cycles happened?
Money plays important role in generating business cycles

9. Money and inflation Old days ...Thirty years ago…
We buy one kilo of meet with SR 5
We buy one kilo of sugar with SR 1
Now...
We buy one kilo of meet with SR 30
We buy one kilo of sugar with SR 4
The average price of goods and services is called Average
Price Level

10. To solve inflation We have to know its causes!!
Increase in money supply leads to increase in price level (Inflation)
Positive association between inflation and growth rate of money supply

11. Money and Interest rate:
Money plays important role in interest rate fluctuations
Central banks / Federal Res. System is responsible for conducting the monetary policy

12. Fiscal Policy and Monetary Policy:
Fiscal policy involves decisions about government spending and taxation
Budget deficit = excess of government expenditures over government revenues for a particular time period
Budget surplus =
Government must finance any deficit by borrowing
Budget surplus leads to a lower government debt burden
GDP (Gross Domestic Product)

13. What is Money? ( Meaning of Money )
Any thing that is generally accepted in payment for goods or services or in repayment of depts.
Currency = Paper money or Coins
Checks , Checking account deposits considered as Money
Word Money is frequently used with wealth
Wealth includes not only money but also other assists such as bonds, stocks, art, land, furniture, cars and houses
Money describe income
Income is flow of earning per unit of time

14. Functions of Money:
In all market transactions, Money is a medium of exchange
It promote economic efficiency by minimizing time spent in exchanging goods and services
Transaction cost is time spent trying to exchange goods or services

15. First role of Money: Money to be used effectively:
Easily standardized , to ascertain its value
Widely accepted
Divisible
Easy to carry

16. Second role of Money: Is to provide a unit of account
It is used to measure value in economy

17. Third role of money: Is store of value
To save purchasing power from time of income received
until time of spent
Money is not only store of value any asset (stocks, bonds,
land, houses..) can be used to store value
Liquidity is highly desirable, so the money but not other assets
Hyperinflation : the inflation rate exceeds 50% per month

18. Evolution of Money: Commodity Money: Money universally accepted
Every one must be willing to take it in payment for goods and services
Gold and silver served a commodity money
Gold and silver were very heavy and hard to carry from one place to another

19. Fiat Money: Checks: Electronic Payment: Paper Currency:
It carried a guarantee that it was convertible into coins or into fixed quantity of precious metal
Checks:
A check is an instruction from you to your bank to transfer money from your account to someone' else account
Electronic Payment:
Development of cheap computers and spread of internet

20. E-money:
Electronic payments technology can substitute not only for checks, but for cash also
First form of e-money was Debit Card
Debit card enable consumers to purchase goods and services by electronically transferring funds directly from their bank accounts to a merchant's bank