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Summary

Summary Banking & Finance
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  • Course
  • Banking & Finance
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  • Arteveldehogeschool (Artevelde)

Summary Banking & Finance

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Document information

  • January 13, 2022
  • 80
  • 2019/2020
  • Summary

Subjects

  • banking amp finance
  • summary
  • artevelde

Written for

  • Arteveldehogeschool (Artevelde)
  • International Business Management
  • Banking & Finance
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Summary banking and finance
Chapter 1: Why study money, banking and financial
markets?

1. Why study financial markets?
 Financial market
 Market in which funds transferred from people who have excess to people who have
shortage, with direct effect on personal wealth, behaviour businesses and
consumers, economy
 Examples: bond and stock markets
 Well-functioning  key factor producing high economic growth
 Poorly performing  reason counties remain desperately poor

A. The bond market and interest rates
 Security
 Financial instrument
 Claim on issuer’s future income or assets
 Bond
 Debt security
 Promises periodical payments for a specific period of time
 Interest rate
 Cost of borrowing money or price paid for rental funds
 Usually expressed as percentage
 Impact on overall health of economy
 Different interest rates tendency to move in unison ( gelijkmatig)

B. The stock market
 Common stock
 Typically just stock
 Represents share of ownership in a corporation
 Security that claims on earnings and assets of a corporation
 Open to the public  way to raise funds for corporations
 Stock market
 Market in which claims on earnings of corporations are traded
 Typically just the market
 Normally most widely followed financial market in countries that have one

,2. Why study financial institutions and banking?
 Financial institutions  make financial markets work

A. Structure of financial system
 Financial market
 Complex
 Private sector
 Banks
 Insurance companies
 Mutual funds Strongly regulated by governments
 Finance companies
 Investment banks
 Financial intermediaries
 Institutions that borrow money from people who saved and make loans for others

B. Financial crises
 Financial crises
 Major disruptions in financial markets
 Sharp declines asset prices
 Failures many firms
 Typically followed by worst business cycle turndowns
 Financial crises 2007
 Worst financial crises US since Great Depression
 Worst recession since WWII  now: Great Recession

C. Banks and other financial institutions
 Banks
 Official institutions that accept deposits and make loans
 Included under term are
 Commercial banks
 Savings and loans associations
 Mutual savings banks
 Credit unions
 Intermediary average person interacts with most
 Largest financial intermediaries

D. Financial innovation
 Financial innovation
 Development new financial products and services
 Makes financial system more efficient
 Dark side  devastating financial crises
 Examples:
 ATM (automatic teller machine)
 E-finance

,3. Why study money and monetary policy?
 Money
 Referred to as money supply
 Anything generally accepted in payment for goods or services or repayment of debts
 Linked to changes in economic variables  important to health of economy

A. Money and business cycles
 Aggregate output
 Total production of goods and services
 Unemployment rate
 Percentage of the available force that is unemployed
 Business cycles
 Upward and downward movement of aggregate output produced in an economy
 Affect all of us in immediate and important ways
 Output rising easier to find good job
 Output falling  difficult to find a good job
 Recessions
 Periods of declining aggregate output
 Money growth declines before recession
 Money might be driving force behind fluctuations
 Not all money declines are followed by recession
 Monetary theory
 Relates changes in quantity of money to changes in aggregate economic activity and
inflation

B. Money and inflation
 Aggregate price level
 Average price of goods and services in an economy
 Simply the price
 Inflation
 Continual increase price level
 Affect individuals, businesses and government
 Generally regarded as important problem to be solved
 Causes
 Price level and money supply increase together  continuing increase money
supply might be important factor causing continuing increase price level
 Quantity of money
 Monetary policy
 Inflation rate
 Rate of change of the price level
 Usually measured as percentage change per year
 Countries highest inflation rate  highest money growth rates

, C. Conduct of monetary policy
 Monetary policy
 Management of money and interest rates
 Central bank
 Organisation responsible conduct of a nation’s monetary policy
 Can affect quantity of money and interest rates in economy
 Eurozone’s central bank  ECB
 United States’ central bank  Federal Reserve System (Fed)

D. Fiscal and monetary policy
 Fiscal policy
 Involves decisions about government spending and taxation
 Budget deficit
 Excess government expenditures over tax revenues
 Typically annually
 Finance  borrowing
 Budget surplus
 Tax revenues exceed government expenditures
 Lower debt burden
 Gross domestic product (GDP)
 Measure of aggregate output
 Explained in Economics
 Bruto binnenlands product (BBP)


4. Why study international finance
 Why study international finance?
 Globalisation of financial market accelerated rapid
 Financial markets integrated throughout the world
 Banks became international
 Foreign exchange market
 Place where conversion of different currencies takes place
 Foreign exchange rate
 Price of one country’s currency in terms of another’s
 Change in this rate direct effect on for example import
 Weaker currency  more expensive foreign goods
 Weaker currency  less import, increase consumption domestic goods
 Strong currency  export abroad more expensive
 Strong currency  less expensive foreign goods

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