econ330ch1notes1 - 2. Risk requires compensation 3....

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Econ330 Chapter 1 1. 5 Parts of the banking system Money - make purchases and store wealth Financial instruments – transfer wealth and risk Financial markets – transfer / trade funds Financial institutions – access to financial market Central banks – monitor / stabilize economy / financial institution 2. Central Banks 1. 170 in world – each country has one 2. 12/15 republics had central banks within a year after 1990 3. Function of money and banking – the government's bank 4. Five core principles of money and banking 1. time has value 1. time affects the value of financial instruments 2. Interest payments exist because of time properties of a financial market
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Unformatted text preview: 2. Risk requires compensation 3. Information is the basis of decisions 4. Markets set prices and allocate resources 5. Stability improves welfare A well functioning financial system promotes economic efficiency – the financial system market makes it easier to trade Facilitates payments – bank checking accounts – cash transactions – providing checking accounts, credit cards, and debit cards Channel funds from savers to borrowers – lending is a form of trading (trade value for a promise) Enable risk sharing – classic examples are insurance and forward markets – trade in risk insurance, forward markets...
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This note was uploaded on 10/14/2009 for the course ECON 330 taught by Professor Neri during the Spring '08 term at Maryland.

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