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

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Chapter 1 - Why Study Money, Banking, and Financial Markets? Why Study Money, Banking, and Financial Markets •To examine how financial markets such as bond, stock and foreign exchange markets work •To examine how financial institutions such as banks and insurance companies work •To examine the role of money in the economy Financial Markets •Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage of funds The Bond Market and Interest Rates •A security (financial instrument) is a claim on the issuer’s future income or assets •A bond is a debt security that promises to make payments periodically for a specified period of time •An interest rate is the cost of borrowing or the price paid for the rental of funds The Stock Market •Common stock represents a share of ownership in a corporation •A share of stock is a claim on the earnings and assets of the corporation Financial Institutions and Banking
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