Money and banking presentation
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This presentation introduces money and the financial system. It defines key components of the financial system including financial instruments, financial markets, financial institutions, and central banks. It then outlines the five core principles of money and banking: 1) Time has value, 2) Risk requires compensation, 3) Information is the basis for decisions, 4) Markets determine prices and allocate resources, and 5) Stability improves welfare. Each principle is briefly described.
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The document discusses different aspects of monetary systems including:
1) It defines money and lists its key properties and functions such as being a medium of exchange, store of value, and unit of account.
2) It outlines different types of money including commodity money, convertible paper money, inconvertible paper money, bank deposits, and electronic money.
3) It explores the demand for money and identifies three motives for holding money: transactions demand, precautionary demand, and speculative demand. Interest rates are a major factor in determining the amount of money people hold.
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The document provides an overview of the money supply and the Federal Reserve System in the United States. It defines different measures of money including M1, M2 and discusses how banks create money through fractional reserve banking. It then explains the role of the Federal Reserve in controlling the money supply through tools like required reserve ratios, open market operations, and interest rates.
Demand for Money
This document summarizes theories of money demand, including the quantity theory of money and Keynes' liquidity preference theory. The quantity theory views money demand as a function of income only, while Keynes argued it depends on both income and interest rates. Later economists like Tobin and Baumol refined Keynes' model by showing transaction demand also responds to interest rates due to opportunity costs of holding money. Precautionary and speculative demand motives are likewise negatively related to interest rates.
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The document discusses the history of money and how bartering was used before modern currencies. Under bartering, people would directly exchange goods and services without a standard medium of exchange. Bartering was inconvenient as the items being traded had to be immediately exchangeable and transporting bulky or heavy goods was difficult. The document then defines money as anything widely accepted as payment for goods and services, which serves as a medium of exchange, store of value, and standard for deferred payments.
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The document summarizes concepts related to interest rates, including:
1) Interest rates are determined by the equilibrium between the demand for and supply of loanable funds. The demand comes from those wanting to borrow, while the supply comes from savings.
2) Nominal interest rates do not account for inflation, while real interest rates are adjusted for expected inflation.
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Money originated from the Latin word 'MONETO' and can be defined as any commodity that is generally accepted for exchange and as a measure of value. The primary functions of money are as a medium of exchange to purchase goods and services, and as a measure of value to compare the worth of different commodities. Secondary functions include acting as a standard for deferred payments, a store of value for present and future needs, and allowing the transfer of purchasing power across locations.
Functions Of Money
The document discusses different aspects of monetary systems including:
1) It defines money and lists its key properties and functions such as being a medium of exchange, store of value, and unit of account.
2) It outlines different types of money including commodity money, convertible paper money, inconvertible paper money, bank deposits, and electronic money.
3) It explores the demand for money and identifies three motives for holding money: transactions demand, precautionary demand, and speculative demand. Interest rates are a major factor in determining the amount of money people hold.
The Money Supply
The document provides an overview of the money supply and the Federal Reserve System in the United States. It defines different measures of money including M1, M2 and discusses how banks create money through fractional reserve banking. It then explains the role of the Federal Reserve in controlling the money supply through tools like required reserve ratios, open market operations, and interest rates.
Demand for Money
This document summarizes theories of money demand, including the quantity theory of money and Keynes' liquidity preference theory. The quantity theory views money demand as a function of income only, while Keynes argued it depends on both income and interest rates. Later economists like Tobin and Baumol refined Keynes' model by showing transaction demand also responds to interest rates due to opportunity costs of holding money. Precautionary and speculative demand motives are likewise negatively related to interest rates.
Money and Banking
The document discusses the history of money and how bartering was used before modern currencies. Under bartering, people would directly exchange goods and services without a standard medium of exchange. Bartering was inconvenient as the items being traded had to be immediately exchangeable and transporting bulky or heavy goods was difficult. The document then defines money as anything widely accepted as payment for goods and services, which serves as a medium of exchange, store of value, and standard for deferred payments.
Money Supply
Money takes various forms including coins, banknotes, and records of debt. It functions as a medium of exchange, unit of account, and store of value. Historically, money transitioned from livestock and commodities to precious metals and eventually fiat currency issued by governments. In India, the rupee is the currency, printed by the RBI and minted by the IGM. Money supply refers to the total amount of money available in an economy and is defined and measured differently by central banks using metrics like M0, M1, M2, M3, and M4. The RBI uses tools like reserve ratios, interest rates, monetary policy, and open market operations to control money supply and stabilize prices.
Money supply
This document defines and explains the key components of money supply and how it is measured. It discusses four main measures of money supply: M0, M1, M2, and M3. M1 includes currency in circulation and demand deposits. M2 adds savings deposits and time deposits. M3 includes longer-term time deposits. Each measure expands the definition in terms of liquidity and availability for use in transactions. The document also explains the components that make up each measure, such as currency, demand deposits, savings deposits, and time deposits.
Measurements of money supply
Velocity of money is calculated by dividing GDP by the value of money supply. Different measurements of money supply (M0, M1, M2, M3) show different velocities, as they represent different components of the money supply. M0 only includes currency in circulation and bank reserves, while M3 includes a broader range of assets. Understanding how money moves between entities in an economy helps explain why velocity, or the rate of money circulation, is important for economic growth.
Money
This document defines money and discusses its key functions. It notes that money acts as a medium of exchange, unit of account, standard of deferred payment, store of value, and means of transferring value. The document outlines different forms of money including cash money created by central banks and credit money created by commercial banks through loans. It also discusses quantity theories of money, how money supply is measured, and references for further reading on macroeconomic topics related to money.
Quantity theory of money
1) Statement to Quantity Theory of Money
2) Graph illustration and Pictorial description of QTM
3) Different Approaches to QTM
4) Fisher's Transaction Approach Description
5) Assumptions of Fisher's Transaction Approach
6) Conclusion
IS-LM Analysis
This document provides an outline and explanation of IS-LM analysis and how it can be used to derive the aggregate demand curve. It begins by explaining why IS-LM analysis was developed as a synthesis of classical and Keynesian thought. It then defines the IS curve as representing goods market equilibrium and the LM curve as representing money market equilibrium. It shows how the intersection of the IS and LM curves determines the equilibrium interest rate and level of output. It further explains how shifts in the IS and LM curves affect this equilibrium and can be used to trace the aggregate demand curve. Fiscal and monetary policy shifts are also discussed through their impacts on the IS and LM curves.
Money Supply
The document discusses the U.S. money supply and its components. It states that money consists of currency, checkable deposits, and similar deposit accounts held by the non-bank public. Approximately 60% of the money supply is made up of checkable deposits. The Federal Reserve uses three definitions of money supply - M1, M2, and M3. M1 includes currency and checkable deposits, while M2 adds other savings deposits and money market funds, making it about three times larger than M1. M3 has an even broader definition that incorporates additional assets.
Interest rates
This document defines key financial terms related to interest rates, bonds, and capital budgeting. It provides formulas for calculating simple and compound interest, present value, future value, real and nominal interest rates, yield to maturity, net present value, and internal rate of return. Examples are given for coupon bonds, zero-coupon bonds, treasury bonds, and consol bonds. Factors that can shift the supply and demand of bonds and money are also outlined.
Supply of money
tried to explain definition, constituents. Factor determining supply of money and RBI's measure of money supply
Introduction to money
The document discusses the evolution of money from barter systems to modern forms. It begins by describing barter systems and their limitations, then moves to commodity money like precious metals. It describes how goldsmith receipts evolved into paper money and different types of paper currency. Later forms of money discussed include bank money, plastic money, and different central banking approaches to currency issuance like commodity backing and reserve requirements. The document provides an overview of the development of money from early barter to modern monetary systems.
Inflation
Inflation is defined as a sustained increase in the overall price level in an economy. There are several views on the causes of inflation. Monetarists believe inflation is always a monetary phenomenon caused by an increase in the money supply. Keynes argued inflation occurs when aggregate demand exceeds aggregate supply after full employment is reached. Common causes of inflation include demand-pull (excess demand) and cost-push (rising production costs). Inflation can take different forms such as creeping inflation (slow price increases) or hyperinflation (rapid price increases). While moderate inflation may stimulate investment and growth, high inflation negatively impacts those on fixed incomes and makes planning difficult.
Difference Between Debt And Equity
Debt refers to funds that a company owes to another entity that must be repaid within a specific term. Equity refers to funds raised by issuing shares to the public that can remain invested in the company long-term as ownership. Key differences are that debt is borrowed while equity is owned, debt carries obligation to repay while equity represents ownership, and debt has fixed regular interest payments while equity dividends are variable and irregular. Maintaining a balanced ratio between debt and equity, typically with equity twice that of debt, helps companies cover potential losses.
Demand for money
The Major reason for the people’s demand for money is that it is needed in any economy in which almost every person and firm sells goods and services for money and in turn uses money to buy the goods and services offered by others. Functionally this amount of money used as a medium of exchange. Classical theory explained the demand for money as essentially a demand resulting from this need for money as medium of exchange.
In Keynesian theory, money becomes much more than a medium of exchange, much more than a medium of exchange, much more than a device for meeting transactions in the marketplace. People also demand money for speculative purposes and as security against unforeseen needs for cash reserves. The break down of the demand for money into transactions and precautionary and speculative demands plays a vital part in the theory of Keynes.
What is Money ?
Money refers to anything that is generally accepted as payment. It functions as a medium of exchange, unit of account, and store of value. Money includes currency, deposits, and other liquid assets. The money supply has evolved from commodity money to various forms like paper currency, checks, and electronic payments. Measuring the money supply includes aggregates like M1, M2, and M3 that capture currencies and increasingly liquid assets.
Supply of Money
The money supply is the total stock of money available in an economy at a given time and can be defined in different ways. The monetary base (M0) comprises cash in circulation and central bank reserves. Narrow money (M1) includes M0 as well as checkable deposits and some savings. Broad money (M2) contains M1 plus long-term savings deposits, capturing money fulfilling both medium of exchange and store of value functions.
Foreign exchange rate
This document discusses foreign exchange rates and foreign exchange markets. It defines foreign exchange as currencies other than a country's domestic currency. The foreign exchange rate is the rate at which one currency can be exchanged for another. The foreign exchange market allows for the trading of national currencies. Equilibrium in the foreign exchange market occurs where demand and supply of foreign currencies are equal. Exchange rates can be fixed by a government or float based on market forces.
Inflation
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.
Inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time.
A Presentation on IS-LM Model
This presentation provides an overview of the goods market equilibrium and money market equilibrium using the IS-LM model. It defines the equilibrium conditions for the goods market as savings equaling investment, and for the money market as money supply equaling money demand. It derives the downward sloping IS curve and upward sloping LM curve, and explains how their intersection shows the overall equilibrium in the goods and money markets. The document then discusses how fiscal and monetary policies can shift the IS and LM curves and discusses the 2001 US recession within this framework.
Money
This document provides an overview of money, including its definition, evolution, characteristics, types, functions, demand and supply. It defines money as anything widely used and accepted in transactions. Money has evolved from commodity money backed by precious metals to modern fiat currency not backed by any commodity. Key characteristics include durability, divisibility, transportability and limited supply. The main types discussed are commodity, fiat and bank money. Functions of money include serving as a unit of value, medium of exchange, store of value and standard for deferred payments. Demand is influenced by transactions, precautionary and speculative motives, while supply includes currency and bank deposits measured by indicators like M1, M2 and M3.
Money
Money serves several essential economic functions according to the document. It acts as a medium of exchange, replacing bartering, allowing goods and services to be traded. Money also serves as a unit of account, allowing prices of goods and services to be denominated in a standard unit. Additionally, money acts as a store of value, allowing purchasing power to be saved and transferred over time. The document discusses different definitions and classifications of money, including definitions based on what constitutes money, whether it is currency in circulation or includes other assets, and classifications based on the nature and legality of various forms of money.
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The document provides an overview of financial systems and markets. It defines key terms like financial system, formal and informal financial sectors, components of a formal financial system including financial institutions, markets, instruments, services and currency. It describes the functions of a financial system like payments, savings, liquidity, risk management and government policy. It also discusses elements of a financial system such as lenders and borrowers, financial intermediaries, instruments, markets, money creation and price discovery. Finally, it provides details about the structure and classification of the Indian financial system.
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Financial markets transfer funds from those with excess funds to those with a shortage. They promote economic efficiency and growth. Interest rates are important as they affect consumers, businesses, and the overall economy. The bond market enables borrowing, and interest rates are determined here. Stocks represent ownership in corporations and trade in stock markets. The foreign exchange market determines currency exchange rates. Financial institutions like banks reduce transaction costs and risks by acting as intermediaries between lenders and borrowers. Money supply increases often lead to inflation as more money chases the same amount of goods and services. Central banks conduct monetary policy to manage money supply, interest rates, and inflation.
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Money Supply
Money takes various forms including coins, banknotes, and records of debt. It functions as a medium of exchange, unit of account, and store of value. Historically, money transitioned from livestock and commodities to precious metals and eventually fiat currency issued by governments. In India, the rupee is the currency, printed by the RBI and minted by the IGM. Money supply refers to the total amount of money available in an economy and is defined and measured differently by central banks using metrics like M0, M1, M2, M3, and M4. The RBI uses tools like reserve ratios, interest rates, monetary policy, and open market operations to control money supply and stabilize prices.
Money supply
This document defines and explains the key components of money supply and how it is measured. It discusses four main measures of money supply: M0, M1, M2, and M3. M1 includes currency in circulation and demand deposits. M2 adds savings deposits and time deposits. M3 includes longer-term time deposits. Each measure expands the definition in terms of liquidity and availability for use in transactions. The document also explains the components that make up each measure, such as currency, demand deposits, savings deposits, and time deposits.
Measurements of money supply
Velocity of money is calculated by dividing GDP by the value of money supply. Different measurements of money supply (M0, M1, M2, M3) show different velocities, as they represent different components of the money supply. M0 only includes currency in circulation and bank reserves, while M3 includes a broader range of assets. Understanding how money moves between entities in an economy helps explain why velocity, or the rate of money circulation, is important for economic growth.
Money
This document defines money and discusses its key functions. It notes that money acts as a medium of exchange, unit of account, standard of deferred payment, store of value, and means of transferring value. The document outlines different forms of money including cash money created by central banks and credit money created by commercial banks through loans. It also discusses quantity theories of money, how money supply is measured, and references for further reading on macroeconomic topics related to money.
Quantity theory of money
1) Statement to Quantity Theory of Money
2) Graph illustration and Pictorial description of QTM
3) Different Approaches to QTM
4) Fisher's Transaction Approach Description
5) Assumptions of Fisher's Transaction Approach
6) Conclusion
IS-LM Analysis
This document provides an outline and explanation of IS-LM analysis and how it can be used to derive the aggregate demand curve. It begins by explaining why IS-LM analysis was developed as a synthesis of classical and Keynesian thought. It then defines the IS curve as representing goods market equilibrium and the LM curve as representing money market equilibrium. It shows how the intersection of the IS and LM curves determines the equilibrium interest rate and level of output. It further explains how shifts in the IS and LM curves affect this equilibrium and can be used to trace the aggregate demand curve. Fiscal and monetary policy shifts are also discussed through their impacts on the IS and LM curves.
Money Supply
The document discusses the U.S. money supply and its components. It states that money consists of currency, checkable deposits, and similar deposit accounts held by the non-bank public. Approximately 60% of the money supply is made up of checkable deposits. The Federal Reserve uses three definitions of money supply - M1, M2, and M3. M1 includes currency and checkable deposits, while M2 adds other savings deposits and money market funds, making it about three times larger than M1. M3 has an even broader definition that incorporates additional assets.
Interest rates
This document defines key financial terms related to interest rates, bonds, and capital budgeting. It provides formulas for calculating simple and compound interest, present value, future value, real and nominal interest rates, yield to maturity, net present value, and internal rate of return. Examples are given for coupon bonds, zero-coupon bonds, treasury bonds, and consol bonds. Factors that can shift the supply and demand of bonds and money are also outlined.
Supply of money
tried to explain definition, constituents. Factor determining supply of money and RBI's measure of money supply
Introduction to money
The document discusses the evolution of money from barter systems to modern forms. It begins by describing barter systems and their limitations, then moves to commodity money like precious metals. It describes how goldsmith receipts evolved into paper money and different types of paper currency. Later forms of money discussed include bank money, plastic money, and different central banking approaches to currency issuance like commodity backing and reserve requirements. The document provides an overview of the development of money from early barter to modern monetary systems.
Inflation
Inflation is defined as a sustained increase in the overall price level in an economy. There are several views on the causes of inflation. Monetarists believe inflation is always a monetary phenomenon caused by an increase in the money supply. Keynes argued inflation occurs when aggregate demand exceeds aggregate supply after full employment is reached. Common causes of inflation include demand-pull (excess demand) and cost-push (rising production costs). Inflation can take different forms such as creeping inflation (slow price increases) or hyperinflation (rapid price increases). While moderate inflation may stimulate investment and growth, high inflation negatively impacts those on fixed incomes and makes planning difficult.
Difference Between Debt And Equity
Debt refers to funds that a company owes to another entity that must be repaid within a specific term. Equity refers to funds raised by issuing shares to the public that can remain invested in the company long-term as ownership. Key differences are that debt is borrowed while equity is owned, debt carries obligation to repay while equity represents ownership, and debt has fixed regular interest payments while equity dividends are variable and irregular. Maintaining a balanced ratio between debt and equity, typically with equity twice that of debt, helps companies cover potential losses.
Demand for money
The Major reason for the people’s demand for money is that it is needed in any economy in which almost every person and firm sells goods and services for money and in turn uses money to buy the goods and services offered by others. Functionally this amount of money used as a medium of exchange. Classical theory explained the demand for money as essentially a demand resulting from this need for money as medium of exchange.
In Keynesian theory, money becomes much more than a medium of exchange, much more than a medium of exchange, much more than a device for meeting transactions in the marketplace. People also demand money for speculative purposes and as security against unforeseen needs for cash reserves. The break down of the demand for money into transactions and precautionary and speculative demands plays a vital part in the theory of Keynes.
What is Money ?
Money refers to anything that is generally accepted as payment. It functions as a medium of exchange, unit of account, and store of value. Money includes currency, deposits, and other liquid assets. The money supply has evolved from commodity money to various forms like paper currency, checks, and electronic payments. Measuring the money supply includes aggregates like M1, M2, and M3 that capture currencies and increasingly liquid assets.
Supply of Money
The money supply is the total stock of money available in an economy at a given time and can be defined in different ways. The monetary base (M0) comprises cash in circulation and central bank reserves. Narrow money (M1) includes M0 as well as checkable deposits and some savings. Broad money (M2) contains M1 plus long-term savings deposits, capturing money fulfilling both medium of exchange and store of value functions.
Foreign exchange rate
This document discusses foreign exchange rates and foreign exchange markets. It defines foreign exchange as currencies other than a country's domestic currency. The foreign exchange rate is the rate at which one currency can be exchanged for another. The foreign exchange market allows for the trading of national currencies. Equilibrium in the foreign exchange market occurs where demand and supply of foreign currencies are equal. Exchange rates can be fixed by a government or float based on market forces.
Inflation
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.
Inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time.
A Presentation on IS-LM Model
This presentation provides an overview of the goods market equilibrium and money market equilibrium using the IS-LM model. It defines the equilibrium conditions for the goods market as savings equaling investment, and for the money market as money supply equaling money demand. It derives the downward sloping IS curve and upward sloping LM curve, and explains how their intersection shows the overall equilibrium in the goods and money markets. The document then discusses how fiscal and monetary policies can shift the IS and LM curves and discusses the 2001 US recession within this framework.
Money
This document provides an overview of money, including its definition, evolution, characteristics, types, functions, demand and supply. It defines money as anything widely used and accepted in transactions. Money has evolved from commodity money backed by precious metals to modern fiat currency not backed by any commodity. Key characteristics include durability, divisibility, transportability and limited supply. The main types discussed are commodity, fiat and bank money. Functions of money include serving as a unit of value, medium of exchange, store of value and standard for deferred payments. Demand is influenced by transactions, precautionary and speculative motives, while supply includes currency and bank deposits measured by indicators like M1, M2 and M3.
Money
Money serves several essential economic functions according to the document. It acts as a medium of exchange, replacing bartering, allowing goods and services to be traded. Money also serves as a unit of account, allowing prices of goods and services to be denominated in a standard unit. Additionally, money acts as a store of value, allowing purchasing power to be saved and transferred over time. The document discusses different definitions and classifications of money, including definitions based on what constitutes money, whether it is currency in circulation or includes other assets, and classifications based on the nature and legality of various forms of money.
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The document provides an overview of financial systems and markets. It defines key terms like financial system, formal and informal financial sectors, components of a formal financial system including financial institutions, markets, instruments, services and currency. It describes the functions of a financial system like payments, savings, liquidity, risk management and government policy. It also discusses elements of a financial system such as lenders and borrowers, financial intermediaries, instruments, markets, money creation and price discovery. Finally, it provides details about the structure and classification of the Indian financial system.
Topic 8_Money and Financial Markets (1).pdf
Financial markets transfer funds from those with excess funds to those with a shortage. They promote economic efficiency and growth. Interest rates are important as they affect consumers, businesses, and the overall economy. The bond market enables borrowing, and interest rates are determined here. Stocks represent ownership in corporations and trade in stock markets. The foreign exchange market determines currency exchange rates. Financial institutions like banks reduce transaction costs and risks by acting as intermediaries between lenders and borrowers. Money supply increases often lead to inflation as more money chases the same amount of goods and services. Central banks conduct monetary policy to manage money supply, interest rates, and inflation.
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Financial intermediation is the process by which banks and other financial institutions channel funds from savers to borrowers. Banks accept deposits from savers and provide loans to borrowers, earning a spread between the lower interest rates paid on deposits and the higher rates charged on loans. This intermediation benefits both savers and borrowers - savers earn interest on deposits and borrowers are able to access funds for investments and economic activity. Financial intermediation also helps transform short-term deposits into long-term loans, allowing for maturity transformation that supports economic growth.
Week-1 Into to Money and Bankingand Basic Overview of U.S. Fin.docx
Week-1 Into to Money and Banking
and Basic Overview of U.S. Financial System
Money and Banking Econ 311
Instructor: Thomas L. Thomas
Financial markets transfer funds from people who have excess available funds to people who have a shortage.
They promote grater economic efficiency by channeling funds from people who do not have a productive use for them to those who do.
Well functioning financial markets are a key factor in producing economic growth, where as, poor functioning financial markets are a major reason many countries in the world remain poor.
Financial Markets
A security or financial instrument is a claim on the issuer’s future income or assets.
A bond is a debt security (IOU) that promises to make payments periodically for a specified period of time.
The bond market is especially important economic activity because it enables businesses and the government to borrow and finance their activities and because it is where interest rates are determined.
An interest rate is the cost of borrowing money or the price to rent (use someone else’s) funds.
Because different interest rates tend to move in unison, economist frequently lump interest rates together and refer to the “interest rate”.
Interest rates are important on a number of levels:
High interest rates retard borrowing
High interest rates induce saving.
Lower interest rates induce borrowing
Lower Interest rates retard saving
Information Asymmetry and Information costs
Why Financial Intermediaries
In the neo-classical world economists have argued financial intermediaries are not necessary. Savers (investors) could manage their risks through diversification.
The logic rests on the perfect market assumption – that is investors can always through their own borrowing and lending compose their portfolios as they see fit, without costs. In such a world there are no bankruptcy costs.
In such a world if taken to the extreme, perfect and complete markets imply that there is no need for financial institutions to intermediate in the financial (capital markets) as every investor (saver) has complete information and can contract with the market at the same terms as banks. E.g. Information Asymmetry
Why Financial Intermediaries Bonds
A common stock (usually called stock) represents a share of ownership in a corporation.
It is usually a security that is a claim on the earnings and assets of the corporation.
Issuing stock and selling it to the public (called a public offering) is a way for corporations to raise the funds to finance their activities.
The stock market is the most widely followed financial market in almost every country that has one – that is why it is generally called the market – here “Wall Street.”
The stock market is also an important factor in business investment decisions, because the price of shares affects the amount of funds that can be raised by selling newly issued stock to finance investment spending. (Note impact examples..
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The document discusses interest rate determination and the structure of interest rates. It covers several theories of interest rates including the classical theory, liquidity preference theory, loanable funds theory, and rational expectations theory. The classical theory argues that interest rates are determined by the supply and demand of savings and investment. The liquidity preference theory states that interest rates are determined by the demand and supply of money. The loanable funds theory considers the demand for and supply of loanable funds. And the rational expectations theory posits that interest rates reflect rational expectations of future rates based on available information. The document also discusses how interest rates are structured and determined by factors like risk, term of maturity, and monetary policy objectives.
INTEREST RATE DETERMINATION(1).pptx
The document discusses several theories of interest rate determination:
1. The classical theory argues that interest rates are determined by the supply of savings and demand for investment, where the equilibrium rate balances the two.
2. The liquidity preference theory views interest as the price of money, with rates set by demand for and supply of money in the economy.
3. The loanable funds theory sees rates as set by demand for and supply of credit in the economy from savers, borrowers, and foreign actors.
FIM Financial pp ch3.pptx
The document discusses various theories of interest rate determination. It begins by defining interest rates and how they are expressed. It then outlines four main theories: the classical theory which argues rates are determined by supply and demand of savings and investment; liquidity preference theory which adds demand for money holdings; loanable funds theory considering demand and supply of credit; and rational expectations theory where rates reflect expectations based on available information. The document also discusses how interest rates form a structure, with risk-free rates as the base and risk premiums added depending on an issuer's creditworthiness as assessed by rating agencies.
An Intro to the Financial Services Industry
The Financial Service Industry is one of the most attractive industries to target if you are a consultant. However, when selling into, or delivering for, Financial Services Institutions (FSIs), it is useful to have some understanding of how FSI business models work, and the unique requirements that drive their IT strategies.This deck is a living document that hopes to act as a primer for consultants who need to support FSI clients, but who may not have prior experience in the sector.
Liquidity preference theory
Keynes' liquidity preference theory holds that individuals and firms demand to hold cash, or liquidity, for three main motives: transaction, precautionary, and speculative. The transaction motive refers to holding cash for daily transactions, while the precautionary motive involves holding cash as a buffer against unexpected events. The speculative motive refers to holding cash in order to take advantage of anticipated price changes in bonds and securities. Together these three motives determine the overall demand for money, or liquidity preference, in the economy. The interest rate is determined by the interaction of liquidity preference and the fixed money supply. When liquidity preference is very high, so that demand for money vastly exceeds supply even at very low interest rates, monetary policy
1 introduction to financial mgt
This document provides an overview of finance and financial management. It defines finance as the study of how individuals allocate resources over time in an uncertain environment and how financial markets and institutions facilitate these allocations. The key aspects of corporate finance are discussed as investment decisions about what projects a firm should undertake and financing decisions about how to pay for investments. The financial objective of management is to maximize shareholder wealth by increasing share price over time. Some of the main principles of finance discussed include risk aversion, the time value of money, and the relation between risk and return. The document also briefly outlines the historic evolution of the field of finance and some of the major works and theories that have developed it into the modern approach used today.
Interest rate
interest rate , determinants, interest rate theories, classical theory, liquidity preference theory, The rational expectational theory, interest rate in nepal.
MMS-Security-Analysis-and-Portfolio-Management-1.docx
The document provides an introduction to securities. It defines securities as any financial asset that can be traded, including stocks, bonds, and derivatives. It describes the key characteristics of securities markets, including that they allow governments and companies to raise long-term capital by issuing debt and equity securities. The capital market is where these long-term securities are traded. Within the capital market, the primary market involves new securities being issued, while the secondary market involves existing securities being traded. The document also discusses dematerialization, which allows physical stock certificates to be converted into electronic holdings.
Introductory Finance for Economics (Lecture 10)
This document provides an overview of financial markets and institutions. It begins by defining key terms like financial systems and markets. It then describes different types of financial markets including capital markets, money markets, commodity markets, and more. It also outlines various financial institutions like commercial banks, investment banks, insurance companies, and others. The document discusses how funds flow through the financial system directly and indirectly. It also touches on important concepts like asymmetric information, free rider problems, and how financial development relates to economic growth. Finally, it introduces Minsky's financial instability hypothesis and how periods of stability can lead to increased risk-taking and potential financial crises.
Final yo yo 2
This document provides an overview of derivatives and the derivatives market in India. It begins with definitions of derivatives and describes their key characteristics, including that their value is derived from an underlying asset. It then discusses the major types of derivatives - forwards and futures - and compares their features. Forwards are customized bilateral contracts while futures are standardized exchange-traded contracts. The document also outlines the major players in the derivatives market, including hedgers, speculators, and arbitrageurs. Finally, it discusses margin requirements and daily marking to market in futures contracts to manage risk.
Financial institution
This document provides information about derivative markets and the risks they cover. It defines derivative instruments and describes some common types, including futures, options, and swaps. It then explains how the derivative market covers foreign exchange risk, interest rate risk, and commodity/product input risk. Companies can use derivatives to hedge against losses from fluctuations in currency exchange rates, interest rates, and raw material prices. The document also contains topics on insurance services in the US, the primary market, investment banks, financial intermediaries, globalization of financial markets, and the Basel Committee.
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Week-1 Into to Money and Bankingand Basic Overview of U.S. Fin.docx
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Money and banking presentation
- 2. Presenter: Osama Hussain Khan Assigned By: ma;m sadaf ayoub
- 3. Course Name: Money and banking Topic of presentation: introduction to money & the financial system. Parts of financial system & the five core principles of money and banking
- 7. A financial system (within the scope of finance) is a system that allows the exchange of funds between lenders, investors, and borrowers. Financial systems operate at national, global, and firm-specific levels. ... Money, credit, and finance are used as media of exchange in financial systems. Financial system:
- 9. Financial instruments are assets that can be traded. They can also be seen as packages of capital that may be traded. ... These assets can be cash, a contractual right to deliver or receive cash or another type of financial instrument, or evidence of one's ownership of an entity.
- 10. A financial market is a market in which people trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural products.
- 11. A financial institution is an establishment that conducts financial transactions such as investments, loans and deposits. Almost everyone deals with financial institutions on a regular basis. Everything from depositing money to taking out loans and exchanging currencies must be done through financial institutions.
- 12. A central bank, or monetary authority, is a monopolized and often nationalized institution given privileged control over the production and distribution of money and credit. In modern economies, the central bank is responsible for the formulation of monetary policy and the regulation of member banks.
- 13. Five core principle of money and Banking TIME has value RISK requires compensation INFORMATION is the basis for decisions MARKETS determine prices and allocation resources STABILITY improves welfare
- 14. TIME Time has value and inflation adversely affects value. Time affects decisions on immediate or later consumption, investment and compound interest earnings. Lenders will demand compensation for parting with their money and getting it back slowly over time. Borrowers are will to give this compensation in returns for getting the needed funds today. TIME Time has value and inflation adversely affects value. Time affects decisions on immediate or later consumption, investment and compound interest earnings. Lenders will demand compensation for parting with their money and getting it back slowly over time. Borrowers are will to give this compensation in returns for getting the needed funds today.
- 15. RISK Risk (potential losses) is unavoidable and requires compensation. Usually higher risk opportunities have higher interest rates (i.e. higher reward). People are will to pay to avoid risk and that those who assume certain risks will demand compensation
- 16. INFORMATION Information is the basis for decisions . Problems can arise when there is asymmetric information. Asymmetric information occurs when one individual may have more knowledge than the other in a transaction, which makes decision making inefficient.
- 17. MARKETS SET PRICES AND ALLOCATE RESOURCES. Fundamental factors of production are scarce resources, and we have unlimited wants so the market allocates these scarce resources by setting a price buyers are willing and able to pay. (Connect borrowers to lenders). A market sets a price that rations scarce resources to those willing and able to pay. Similarly, in the financial sector markets will determine what investments get funded.
- 18. STABILITY Economic or market stability improves welfare in the economy. Central banks work to keep markets and the financial system stable, which is better for all individuals.