CH1 - Chapter 1 An Introduction to Money and the Financial...

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Chapter 1 An Introduction to Money and the Financial System Chapter Overview Chapter 1 introduces students to the five parts of the financial system and to the five core principles that will be used throughout the text as each topic is covered. The organization of the text is also discussed. Reading this chapter will prepare students to: comprehend that a healthy and constantly evolving financial system is the foundation for economic efficiency and economic growth; define the five parts of the financial system, which are: o Money, which is used to pay for purchases and to store wealth. o Financial instruments, which are used to transfer resources and risk. o Financial markets, which allow people to buy and sell financial instruments. o Financial institutions, which allow people access to the financial markets, collect information, and provide a variety of other sources. o Central banks, which stabilize the economy. apply five core principles of money and banking, which are: o Core Principle 1: Time has value. o Core Principle 2: Risk requires compensation. o Core Principle 3: Information is the basis for decisions. o Core Principle 4: Markets determine prices and allocate resources. o Core Principle 5: Stability improves welfare. Important Points of the Chapter This section of the instructor’s manual will highlight key points made in each chapter; these may be the “big questions” (and their answers) raised in the chapter introduction, or may be “timeless lessons” that students will use well into the future. Application of Core Principles A key feature of the text is the distillation of 5 core principles, which are defined in this chapter and used as organizing themes throughout the rest of the book. While the 5 principles will be fully treated in the chapter outline below, it is worth listing them here; they are: 1) Time has value. 2) Risk requires compensation. 3) Information is the basis for decisions. Instructor’s Manual t/a Cecchetti: Money, Banking, and Financial Markets 1
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Chapter 1 An Introduction to Money and the Financial System 4) Markets set prices and allocate resources. 5) Stability improves welfare. Students and instructors should look for the icons in the text that signal that a core principle is being applied. Teaching Tips/Student Stumbling Blocks Students should note that they will be asked to apply the core principles to different topics; see the problems at the end of this chapter for examples. You may wish to present the list of five core principles often in your presentations. • It also might be helpful for students to create a reference list of the five core principles and keep it in a handy spot; the inside front cover of their class notebook, perhaps. • It will be helpful to find out if the students in your class have already taken statistics or
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CH1 - Chapter 1 An Introduction to Money and the Financial...

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