3323ch02 - Chapter 2 The Role of Money in the Macroeconomy...

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Spring 2000 1 Chapter 2 The Role of Money in the Macroeconomy Introduction - What is finance - Dimension of finance - Sectors of economy - Importance of financial system - Govt. interest in financial sector *- What is money - Why hold financial assets What is Finance? Finance is "the science of managing money." Finance has two significant dimensions: (1) return (2) risk The higher the risk is perceived the greater the return will be required. The more variable the return on an investment, the greater the likelihood of loss. An individual's or a complex of financial markets and institutions. A financial system includes the instruments, and institutions, markets, and rules governing the routing of funds from buyers to sellers and from savers to lenders. The monetary system is that part of the financial systems that encompasses only the institutions, including the central bank that is involved in the creation and the distribution of money. In the monetary sector, we are interested in how institutions make available to the lender and borrower their services.
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