For the next two weeks we will be talking about banking andfinance. Today’s class will be about the basics of banking.Unless you understand how banks work, it is difficult tounderstand- how the financial system works (including the onset of theGreat Depression in 1929).- the changes that occurred in the financial system in the1860s, 1910s, and 1930s.So what we are talking about today will be important formaterial that we cover later in the semester, not just the periodfrom 1860 to 1910.
RememberWhen you BUY A BOND, you are MAKING A LOAN.When you SELL A BOND, you are TAKING OUT A LOAN.Most commercial instruments are some form of bond, they differby the term, the way interest is paid, and to whom the bond ispayable. THE PRICE OF A BOND IS INVERSELY RELATED TOTHE INTEREST RATE.When interest rates rise, the price of a bond falls.Be sure you understand why.
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