Lecture11_312_Banking_SP11

Lecture11_312_Banking_SP11 - Lecture #11 Feb 28 Banking For...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture #11 Feb 28 Banking
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
For the next two weeks we will be talking about banking and finance. Today’s class will be about the basics of banking. Unless you understand how banks work, it is difficult to understand - how the financial system works (including the onset of the Great Depression in 1929). - the changes that occurred in the financial system in the 1860s, 1910s, and 1930s. So what we are talking about today will be important for material that we cover later in the semester, not just the period from 1860 to 1910.
Background image of page 2
Remember When 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 differ by the term, the way interest is paid, and to whom the bond is payable. THE PRICE OF A BOND IS INVERSELY RELATED TO THE INTEREST RATE. When interest rates rise, the price of a bond falls. Be sure you understand why.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Say you put $100 in the bank today. Interest rate Income 4% $4 5% $5 6% $6 10% $10 Lets think of what you are doing another way. Suppose you loan the bank $100 by selling the bank a bond.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/25/2011 for the course ECON 312 taught by Professor Johnwallis during the Spring '11 term at Maryland.

Page1 / 12

Lecture11_312_Banking_SP11 - Lecture #11 Feb 28 Banking For...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online