chpt01.ppt

1、2020/8/2,1,1.Introduction and Overview,2020/8/2,2,Part 1 introduction,Introduction and overview Principles of money The role of money and credit Financial markets, instruments and market makers,2020/8/2,3,1. Introduction and Overview,What this book is about Economic and financial analysis of an ever

2、-changing system Finance in our daily lives Introducing the financial system More on financial intermediaries Depository institutions and other types of intermediaries The federal reserve system The role of policy: changing views,2020/8/2,4,What this book is about?,Changes of financial institutions

3、and regulations Relationships between commercial banks and central banks Globalization of financial markets Influences of tech changes on financial markets Financial derivatives Currency value fluctuation on foreign exchange market Unemployment and inflation Interest rates and investment ,2020/8/2,5

4、,Economic and financial analysis of an ever-changing system,Economics - The study of how society decides what gets produced and how it gets produced, and who gets what. How scarce resources are allocated in the production process among competing uses. How income generated in the production and sale

5、of goods and services is distributed among members of society. How people allocate their income through spending, saving, borrowing and lending decisions,2020/8/2,6,Economic and financial analysis of an ever-changing system,Microeconomics The branch of economics that studies the behavior of individu

6、al decision-making units such as households and business firms. Macroeconomics - The branch of economics that studies the aggregate, or total, behavior of all households and firms.,2020/8/2,7,Economic and financial analysis of an ever-changing system,Finance - The study of how the financial system c

7、oordinates and channels the flow of funds from lenders to borrowersand vice versaand how new funds are created by financial intermediaries during the borrowing process. in this text Broader the study of the financial or monetary aspects of the production, spending, borrowing and lending decisions Na

8、rrower how individual manage money,2020/8/2,8,Economic and financial analysis of an ever-changing system,Firms and individuals have developed new ways to raise and use money and managed risks better: ATMs Debit cards and credit cards Home equity lines of credits Mutual funds and other instruments ,2

9、020/8/2,9,Economic and financial analysis of an ever-changing system,Because of financial innovations, regulatory authorities have to reconsider the costs and benefits associated with certain regulations. Deregulation - The removing or phasing out of existing regulations.,2020/8/2,10,Economic and fi

10、nancial analysis of an ever-changing system,Early 1970s late 1980s: deregulation Later 1980s early 1990s: re-regulation Mid 1990s: deregulation Early 2000s: further deregulation Now: ?,2020/8/2,11,Finance in our daily lives,Money Something acceptable and generally used as payment for goods and servi

11、ces. Saving - Income not spent on consumption. Question 14 Net lender - Spending units such as households and firms whose income exceeds their spending. (have a surplus) Net borrowers - Spending units such as households and firms whose spending exceeds their income. (have a deficit) EXHIBIT 1-1,2020

12、/8/2,12,Finance in our daily lives,Analysis of individuals and households Question 16 Analysis of business firms Question 15 The financial system links up these net lenders and net borrowers. EXHIBIT 1-2,2020/8/2,13,Introducing the financial system,Financial market - Markets in which spending units

13、trade financial claims. Direct finance - When net lenders lend their funds directly to net borrowers.,2020/8/2,14,Introducing the financial system,Financial institutions - Firms that provide financial services to net lenders and net borrowers; the most important financial institutions are financial

14、intermediaries. Financial intermediaries - Financial institutions that borrow from net lenders for the purpose of lending to net borrowers. Indirect finance - When net borrowers borrow from financial intermediaries that have acquired the funds to lend from net lenders.,2020/8/2,15,Introducing the fi

15、nancial system,Examples of direct finance and indirect finance EXHIBIT 1-3: how the financial system links net lenders and net borrowers?,2020/8/2,16,More on financial intermediaries,A net lender faces two decisions to make: Holding the surplus in the form of cash or lending it out? How and where is

16、 the surplus to be loaned? We should appraise the risk or probability of default and minimize it. Default - When a borrower fails to repay a financial claim.,2020/8/2,17,More on financial intermediaries,Why do we need financial intermediaries? Reason one: Financial intermediaries minimize the costs

17、(transaction costs) associated with borrowing and lending. Transaction costs - The costs associated with borrowing and lending or making other exchanges.,2020/8/2,18,More on financial intermediaries,Reason two: The secondary claims offered by intermediaries are often more attractive to many lenders

18、than the primary claims available in financial markets. Less risk More liquidity,2020/8/2,19,More on financial intermediaries,Liquidity - The ease with which a financial claim can be converted to cash without loss of value. Question 12,2020/8/2,20,Depository institutions and other types of intermedi

19、aries,Financial intermediaries: Depository institutions (commercial banks, savings and loans associations, credit unions, mutual savings banks) Other intermediaries (life and casualty insurance companies, pension funds, mutual funds and money market mutual funds, finance companies) EXHIBIT 1-4,2020/

20、8/2,21,Depository institutions and other types of intermediaries,Depository institutions - Financial intermediaries that issue checkable deposits. Checkable deposits - Deposits that are subject to withdrawal by writing a check. largest type of intermediary central part of the process that determine

21、the nations money supply,2020/8/2,22,The federal reserve system,Federal Reserve (Fed)- The central bank of the United States that regulates the banking system and determines monetary policy. Monetary policy - The Feds efforts to promote the overall health and stability of the economy.,2020/8/2,23,Th

22、e federal reserve system,Why does the Fed monitor the economy? The Fed plays a leading role in determining the overall health of the U.S. economy. The Feds influence on banks spreads through a number of channels to other financial intermediaries and more generally to the transfer of funds from net l

23、enders to net borrowers. By affecting interest rates and the volume of funds transferred from lenders to borrowers, the Fed can influence the aggregate, or total, demand for goods and services in the economy, and hence, the overall health of the economy.,2020/8/2,24,The federal reserve system,Why do

24、es the Fed monitor the economy? Reasons: 1) Increasing information available to investors 2) Ensuring the soundness of financial intermediaries 3) Improving control of monetary policy 4) Doing with market-failure,2020/8/2,25,The federal reserve system,What actions can the Fed take to affect the over

25、all health of the economy? The Fed monitors the performance of the financial system and the economy with an eye toward augmenting or reducing the supply of funds flowing from lenders through financial markets and financial intermediaries to borrowers. Any action the Fed undertake sets off a chain of

26、 reactions as depicted in EXHIBIT 1-5.,2020/8/2,26,The federal reserve system,An analogy (partial likeness) Economy human patient Sectors of economy (household, firm, government, foreign) part of human body Money blood Acts of spending and saving & lending and borrowing circulatory system,2020/8/2,2

27、7,The federal reserve system,Full employment Low inflation Economy growth Balance of payments -good health of human body,2020/8/2,28,The role of policy: changing views,Business cycle - Short-run fluctuations in economic activity as measured by the output of goods and services. Expansion (recovery) P

28、eak Recession (contraction) Trough Expansion - The phase of the business cycle in which economic activity increases and unemployment falls. Recession - The phase of the business cycle in which economic activity falls and unemployment rises.,2020/8/2,29,The role of policy: changing views,Policy maker

29、 manage the economy or cure some diseases of the economy by monetary policy and fiscal policy mainly. Fiscal policy - Government spending and taxing decisions to speed up or slow down the level of economic activity.,2020/8/2,30,The role of policy: changing views,Views on the appropriate role of policy in the economy that is, how “activist” policy makers should be in trying to manage the economy have varied over time. Argument: the economys illness can b