Chapter 01 - 1. Why Study Money, Banking, and Financial...

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1. Why Study Money, Banking, and Financial Markets 1.1 Why Study Financial Markets 1.2 Why Study Banking and Financial Institutions 1.3 Why Study Money and Monetary Policy 1.4 How We Will Study Money, Banking, and Fin
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1.1 2 Financial markets – markets in which funds are transferred from people who have an excess of available funds to people who have a shortage Security – a claim on the issuer’s future income or assets Bond – a debt security that promises to make payments periodically for a specific period of time (the bond market is where interest rates are determined ) Interest rate – the cost of borrowing or the price paid for the rental of funds (high interest rates could deter purchases, or investment, and encourage savings)
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1.1 3 Different interest rates have a tendency to move in unison ( Figure 1.1 ), economists frequently lump interest rates together and refer to ‘the’ interest rate regardless short-term interest rate fluctuates more and lower on average than others Common stock – a share of ownership in a corporation , a claim on the earnings and assets of the corporation (corporations issue and sell stock to the public to raise funds to finance their activities) Stock market is a place where people ‘ get rich and poor quickly with considerable fluctuations ( Figure 1.2 ) in stock prices, which affect the size of people’s wealth (and their willingness to spend)
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1.1 4 The stock market is also an important factor in business investment decisions because of the price of shares affects the amount of funds that can be
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This note was uploaded on 10/05/2010 for the course ECO 349 taught by Professor H during the Fall '09 term at University of Toronto- Toronto.

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Chapter 01 - 1. Why Study Money, Banking, and Financial...

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