o Financial system
Gross domestic product
o The main components are:
C product consumption
G government spending
I what businesses spend
Capital markets where you raise money for your business
o Debt and equity
US treasury securities are issued by the government with the faith and credit of
o Pays obligations: tax receipts
o 1990s with Clinton, we had balanced budg
Individuals single family homes, condos, apartments
Companies office space, retail space
Investors shopping malls, apartment buildings, multifamily
o All forms a need for the mortgage market
Overview of Money Markets
o Short-term debt market most under 120 days
o A few high quality borrowers
o Many diverse investors
o Informal market centered in NYC
o Standardized securities one security is a close substitute for anoth
September 24, 2013
o A form of loan-a debt security obligating a borrower to pay a lender
principal and interest
o Borrower (issuer) promises contractually to make periodic payments to
lender (investor or bondholder) over given numb
The structure of interest rates
Factors that influences interest rate differences
o Term to maturity- length of time will influence the interest rate
o Default risk-credit worthiness-likelihood that theyll make the payments
influences the intere
The level of interest rate
Interest rates defined
o Rental price for money
o Penalty to borrowers for consuming before earning
o Reward to savers for postponing consumption
o Expressed in terms of annual rates
o As with any price, interest rates
August 30, 2013
What do you know about the Fed?
o Who is the Federal Reserve chairman?
o Who preceded Ben Bernanke?
o What does FOMC stand for?
Federal Open Market Committee
o What is the Fed Funds Rate?
September 9, 2013
Laying the foundation
o What are the main accounts on the Feds balance sheet?
Short term loans
o What are the tools of monetary policy?
Financial Markets & Institutions Exam 1 Study Guide
Know the six parts of the financial system
o Money-used to make purchases and store our wealth
Always evolving. Used to be gold and silver coins
o Financial instruments-used to transfer resour