Banking chapter 1 - Why study money, banking, and financial markets?

summary the economics of money banking and financial marketins 13th edition global edition mishkin 9781292409481 1 / 3

summary the economics of money banking and financial marketins 13th edition global edition mishkin 9781292409481 2 / 3

summary the economics of money banking and financial marketins 13th edition global edition mishkin 9781292409481 Banking chapter 1 - Why study money, banking, and financial markets?Why study financial markets? – financial markets: markets in which funds are transferred from people who have an excess of available funds to people who have a shortage – bond/stock markets crucial to promote greater economic efficiency by channeling funds – well-functioning financial markets are key in producing high economic growth.The bond market and interest rates – security: claim on issuer’s future income or assets; any financial claim or piece of property that is subject to ownership. Bond: debt security that promises to make payments periodically for a specified period of time – bond market enables corporation/governments to borrow to finance activities and it determines interest rates.Interest rate: cost of borrowing or the price paid for the rental of funds – e.g. mortgage interest rates, car loan rates – personally; high rates could deter you from buying a house//encourage to save – generally; affect not only consumers but also businesses – interest can differ and fluctuate heavily.The stock market – common stock: represents a share of ownership in a corporation – is a security that’s a claim on earnings/assets of a corporation – issuing stocks is a way to raise funds to finance activities – stock market globally most followed financial market – fluctuates a lot. Important factor in business investment decisions since price of share affects amount of funds that can be raised.Why study financial institutions and banking? – banks and other financial institutions are what make financial markets work.Structure of the financial system – private sector financial institutions, insurance companies, mutual funds, investment banks – lend to a company through financial intermediaries: institutions that borrow funds from people who have saved and in turn make loans to others.Financial crisis – financial crisis: major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many (non-)financial firms.Banks and other financial institutions – bank: financial institution that accept deposits and make loans – commercial banks, savings associations, mutual savings banks.Financial innovation – financial innovation: development of new financial products and services – make the financial system more efficient – e-finance: to deliver financial services electronically.Why study money and monetary policy? - money/money supply: anything that is generally accepted in payment for goods or services or in the repayment of debts. Money and business cycles – aggregate output: total production of goods and services – unemployment rate: percentage of the available labor force unemployed. Business cycles: upward/downward movement of aggregate output produced in the economy – recessions: periods of declining aggregate output – monetary theory: theory that relates quantity of money and monetary policy to changes in aggregate economic activity and inflation.

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