Thursday, October 25, 2007

Topic 6 - Money and Banking (Chapter 15)

Class Notes - Money and Banking (Chapter 15)

I) The functions of money
a) medium of exchange
b) unit of accounting
c) store of value
d) the concept of liquidity (i.e. the ease of converting a house into cash vs having cash on hand).
e) what backs money? - fiduciary monetary system (i.e. trust that the government will maintain stability in money)

II) What is money?
a) monetary base - the bills and coins in your hand
b) m1 = monetary base + transactions deposits (checks and check cards) + traveler's checks
c) m2 = m1 + savings accounts + small denomination time deposits (i.e. cd's less than $100,000 in value) + money market mutual funds
d) the idea is that what we consider money is more than just cash on hand. That is, other assets, like savings account, are close enough to actual money that we should include it in our "broader" definition of money

III) Financial intermediation
a) why do we have banks?
1) asymmetric information - the borrower may have more information about his company than you do, which could lead to fraud if you do not investigate thoroughly. But this is time consuming
2) moral hazard - after the borrower has the money, he may take risks with it that he otherwise wouldn't take. Preventing this is very time consuming
3) big banks can often do things cheaper than people can individually
b) therefore, most people lend and borrow money indirectly via banks rather than lending to each other directly.

IV) Central Banks
a) Purpose
1) perform banking functions for their nations government
2) provide financial services for private banks
3) conduct monetary policy *

V) The US Federal Reserve
a) organization
Board of Governors - 7 full time members. The chair is the head official for both the BOG and the Fed. This is the role Greenspan had for many years. Currently Ben Bernanke is the "Fed chief"
b) 12 Fed district banks (with 25 branches). Each of the 12 district banks has a president.
3) FOMC (Federal open market committee) - BOG (7) + President of the NY Fed + 4 other presidents among the remaining district banks. These 4 voters rotate annually.



Ayo Sekolah said...

Kerja Keras adalah Energi kita
yach, kata tersebut adalah kalimat yang harus kita resapi bersama. Dengan slogan Kerja Keras adalah Energi kita semoga saja kita akan memperoleh semangat dan kehidupan yang lebih baik dari hari kehari. Yuk kita ramaikan Kerja Keras adalah Energi kita bersama zulfirman baik saya maupun anda. Kerja Keras Energi kita
Kontes Kerja Keras Energi Kita Keyword Energi kita

pbsl said...

you have a nice site.thanks for sharing this valuable resources. keep it up. you can also earn money from here said...

Want more time with parents and children with family? Can operate as long as the trivial time
Welcome to learn a simple understanding of free market

I wish you your heart happy! ~

M. Daniyal Iqbal said...

Good Work! Dragon Ball, Dragon Ball z and Dragon ball GT Remastered Seasons Episode Saga Watch At

M. Daniyal Iqbal said...

SEO Stand For Search Engine Optimization. it most important to Traffic.
Get Free Seo Button and Traffic
Google Bot Visit Button
Yahoo Bot Visit Button
Msn Bot Visit Button
Page Rank
Google Indicator
SEO Monitor
Hits Counter