The Banking Industry: Basics ECON 3381 A. Hales
What is a bank?
A bank is a financial institution that accepts deposits and makes loans.
Types of Banks
Largest part of the banking system Can be subdivided into 3 categories, based partly
Financial Markets ECON 3381 A. Hales
A collection of people and firms that buy and sell securities or currencies
Security: Claim on some future flow of income, such as a stock or a bond
Bond: security that promises predetermined payments
Interest Rates ECON 3382-02 A. Hales Spring 2010
Nominal and real interest rates interest rate: does not adjust for inflation. Nominal
Real interest rate: interest rate that is adjusted for
inflation. It more accurately reflects the true cost of borrowing
ECON 3381.01 A. Hales
What is a market?
Any arrangement that enables buyers and sellers to do business with each other In a market with no government intervention, there are only 2 groups:
Producers: the sellers of goods and services Consum
Monetary Theory ECON 3381:Spring 2010 A. Hales
Study of the effect of money on the economy. A core issue in monetary theory is the behavior of money demand-specifically whether and to what extent the quantity demanded of money is affected
What is Money?
Hales ECON 3381 Fall 2010
What is Money?
Money is anything that serves the following three functions.
Medium of exchange
Money can be used to purchase goods and services and to pay off debt
Unit of Account
Money can be used to meas
The Banking Industry: Regulation and Structure ECON 3381 A. Hales
Types of Regulation
Entry and Chartering Regulation: limits the number of banks in any given financial services sector Safety and soundness regulation: designed to protect depositors and bo
ECON 3381 A. Hales Fall 2010
The Federal Reserve System (Fed) is the central bank of the United States. It is not a private/citizen's bank. Functions of Central Banks
Clearing payments: clear checks and process electronic payments;
Time Value of Money ECON 3381 A. Hales
Time Value of Money
A dollar today is worth more than a dollar to be received in the future because if you had it now you could invest it and earn interest. Time Value of Money has many applications, including saving