Summary of chapter 1,2,3 The Economics of Money, Banking, and Financial Markets by Frederic S. Mishkin.
Part of first exam International Trade and Money.
Year 2 International Business
The Economics of Money, Banking, and Financial Markets.
Mishkin
Chapters 1,2 & 3
CHAPTER 1
Financial market are markets in which funds are transferred: - from people who have an
excess of available funds to people who have a shortage of available funds.
Meaning: the markets where people who have extra money will put it on the bank and
where people who want more can borrow that money from the bank.
Important because they allow funds to move from people who have such an important
investment opportunity to those who lack them.
Financial instruments/ security: an claim on the issuer’s future income.
A bond: is a debt security that promises to make payments periodically for a specifed period
of time.
Interest rate: cost of borrowing for the rental funds.
Common stock: represents a share of ownership in a corporation. Issuing stock and selling it
to the public is a way to raise funds to fnance their activities.
Structure of the fnancial system:
Lending and borrowing is normally done through fnancial intermediaries.
Financial crisis: major disruptions which are characterized by sharp declines in asset prices
and the failure of many companies.
Banks: are fnancial institutions who accept deposits and make loans.
(commercial banks, savings and loan associations, mutual savings bank and credit unions)
Financial innovaton: the development of new fnancial products and services. Such as
E-fnance: fnancial services delivered electronically.
Financial innovation can lead to higher profts and also disasters.
Money/ Money supply: accepted in the payment for goods and services.
Aggregate output: total production of goods and services (expressed in money)
Aggregate price level: average price of products in an economy.
Inflaton: continual increase in the price level which afects everybody.
An increase in demand and for money creates infation.
As well as interest rate fuctuations.
A nations organization which is responsible for the conduct of their monetary policy is called
a central bank.
United states ofcial bank: federal reserve system.
, Fiscal policy: invokes the decisions about government spending and taxation.
A budget defcit: when a government spends more then it earns.
Budget surplus: when a government earns more then it spends.
Gross Domestc Product: (a common measure of aggregate output), market value of all fnal
goods and services produced in a country during the year.
Money transferred from one country to another has to be transferred in the currency of the
country where it is going. NL buying form US = paid in USD.
The change of the money is done on the: Foreign exchange market(instrumental to move
funds).
Here the foreign exchange rate is determined: (price of one countries currency in another).
A weak currency leads too expensive to buying foreign goods.
Real GDP growth rate: (real GDP new- real GDP old)/ real GDP old x 100%
CHAPTER 2
Direct fnance: usually when a borrower directly borrows a fund from a lender by selling
them securitessfnancial instruments c.1) in which they set a claim on future income.
Such a security is an asset for the lender but an liability for the borrower.
Financial institutions are important for an efcient allocation of capital(wealth)
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