Ch01-Ch07 outline - 1 A healthy and constantly evolving...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
An Introduction to Money and the Financial System   1. A healthy and constantly evolving financial system is the foundation for economic efficiency and economic growth. It has six parts: a. Money is used to pay for purchases and to store wealth. b. Financial instruments are used to transfer resources and risk. c. Financial markets allow people to buy and sell financial instruments. d. Financial institutions provide access to the financial markets, collect information, and provide a variety of other services. e. Government regulatory agencies aim to make the financial system operate safely and reliably. f. Central banks stabilize the economy. 2. The core principles of money and banking are useful in understanding all six parts of the financial system. a. Core Principle 1: Time has value. b. Core Principle 2: Risk requires compensation. c. Core Principle 3: Information is the basis for decisions. d. Core Principle 4: Markets determine prices and allocate resources. e. Core Principle 5: Stability improves welfare. Money and the Payments System   1. Money is an asset that is generally accepted in payment for goods and services or repayment of debts. a. Money has three basic uses: I. Means of payment II. Unit of account III. Store of value b. Money is liquid. Liquidity is the ease with which an asset can be turned into a means of payment. c. For financial institutions, market liquidity is the ease with which they can sell a security or loan for money. Funding liquidity is the ease with which they can borrow to acquire a security or loan. 2. Money makes the payments system work. The payments system is the web of arrangements that allows people to exchange goods and services. There are three broad categories of payments, all of which use money at some stage. 3. In the future, money will be used less and less as a means of payment. 4. To understand the links among money, inflation, and economic growth, we need to measure the quantity of money in the economy. There are two basic measures of money.
Image of page 1

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

View Full Document Right Arrow Icon
Financial Instruments, Financial Markets, and Financial Institutions   1. Financial instruments are crucial to the operation of the economy. a. Financial arrangements can be either formal or informal. Industrial economies are dominated by formal arrangements. b. A financial instrument is the written legal obligation of one party to transfer something of value, usually money, to another party at some future date, under certain conditions.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern