ECON 301 NOTES

ECON 301 NOTES - ECON 301 NOTES CHAPTER 1: Financial...

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ECON 301 NOTES CHAPTER 1: Financial Markets : markets for buying and selling bonds, stocks, foreign exchange and other financial instruments Financial Institutions : banks or insurance companies, the go-betweens for savers and borrowers Financial System : a network of markets and institutions to bring savers and borrowers together Three groups of borrowers and savers: households, businesses, and governments Financial Instruments: assets for savers and liabilities for borrowers Ways to transfer funds between savers and borrowers: 1. Government can allocated funds among sectors of the economy - Three key financial services: a. Risk Sharing: giving savers and borrowers a way to reduce uncertainty to which they are exposed b. Liquidity: measure of how readily one asset can be converted to cash c. Information: gathers and communicates information about borrowers’ circumstances so that the individual savers do not have to search out borrowers International Capital Market: market for lending and borrowing across national borders Financial Intermediaries: institutions such as commercial banks, credit unions, savings and loan associations, mutual savings banks, mutual funds, finance companies, insurance companies, and pension funds that borrow and pool funds from savers and lend them to borrowers Why are banks important: 1. They are the largest financial intermediaries 2. They lend to many sectors of the economy, including households and small to large businesses Money: anything people are willing to accept in payment for goods and services or to pay off debt Money Supply: total quantity of money in the economy Federal Reserve System: collects data on various measures of the money supply, and it is the central bank in the United States Monetary Policy: refers to the management of money supply and its link to prices, interest rates, and other economic variables Monetary Theory: explores the relationships linking changes in money supply to changes in economic activities and prices Economic Analysis allows you to: 1. EXPLAIN current developments and events 2. PREDICT future developments and events Three questions for a successful theory
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ECON 301 NOTES - ECON 301 NOTES CHAPTER 1: Financial...

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