1、1-1Why Money and Banking?Money and Banking is an exciting field of great importanceWhat happens in the banking system and financial market can affect a nations overall economy and peoples daily life greatly in many ways1-2Global Financial Crisis Sep 15,2008:US fourth investment bank Lehman Brother w
2、ent bankrupt Job loss go home SADILY 1-3Global Finance Crisis 1-41-5“Black Monday”Oct 6,20081-6Job Loss Everywhere!40,000 Job Loss in Wall Street in the US,to make a living,they are doing acrobatics on the street.In UK,unemployment rate raises to the highest record of 3.8%for the past of nine years.
3、In Australia,unemployment climbs to 4.8%In Russia,1.7 million is now under unemployment 1-7Job Fair of 2009 China1-8 Financial Crisis has caused great concern to the governments in the world-Headache!What to DO?CChinas 4 trillion yuan to stimulate economy USs$780 billion stimulus package 1-9Global F
4、inancial Crisis5/29/2008:The fifth investment bank,Bear Stearns(贝尔斯登）贝尔斯登）was taken by JPMorgen.9/7/2008:Two Government Sponsored Enterprise,Fennie Mae(房利房利美）美）and Feddie Mac（房地美（房地美)was taken over by US government.9/14/2008,Merrill Lynch(美林）美林）was sell to Bank of America with US$50 billion 9/15/200
5、8:Lehman Brother went bankrupt9/17/2008:The biggest insurance company AIG(American International Group)was taken over by US government and filled with US$85 billion of rescue fund.9/22/2008:Morgan Stanley(摩根斯坦利）摩根斯坦利）and Goldman Sachs（高盛）（高盛）were transformed to be bank-holding companies.9/26/2008:FD
6、IC(Federal Deposit Insurance Corporation)was take over by the government.10/6/2009:“Black Monday”of global stock markets10/7/2009:governments of major economies start to cut interest rate to boost the world markets.Over 160 banks became insolvent in the US between 2008 and 2009.1-10Facing Financial
7、Crisis First G-20 Leaders Summit on Financial Markets and World Economy,November 14-15,2008,Washington,D.C.reached a common understanding of the root causes of the global crisis;reviewed actions countries had taken and would take in the future to address the immediate crisis and strengthen growth;ag
8、reed on common principles for reforming their financial markets;launched an action plan to implement those principles and asked ministers to develop further specific recommendations that would be reviewed by leaders at a subsequent summit;and reaffirmed their commitment to free market principles.1-1
9、1Facing Financial CrisisSecond G-20 Summit:April 2,2009,London US$500 billion for the IMF to aid struggling economies,US$250 billion to boost world tradeUS$250 billion for a new IMF overdraft facility,US$100 billion to assist international development banks in lending to poor countries.The next G-20
10、 Summit took place on September 2425,2009,Pittsburgh,US a proposal to radically reform the International Monetary Fund One of the major announcements of the meeting was that the group will become the new permanent council for international economic cooperation.This means that the much larger G-20 me
11、eting will essentially replace the smaller G8,which will continue to meet on major security issues but will carry reduced influence The Battle against Financial Crisis and Economic Recess is stilling going on in many countries!1-12 What caused the financial crisis?What is the true reason behind?Why
12、one event in real estate markets can lead to such a huge mess on the financial markets all over the world and go even further to cause a world economy recess?What was wrong in the US economy and global financial system?How great effect was the crisis to the US economy and other economies?Where is th
13、e eventual way out?1-13 Understand what is Money?Its meaning,types,role,and importance Provide sufficient understanding of the concept of Interest Rate its types,behavior,role,and importance in the economy Expose students to wide variety of Financial Markets their types,functions,role and importance
14、 Sound understanding of the tools of Monetary Policy,its determinants,conduct,and importance Study Demand for Money,Money&Inflation,Monetarist vs.Keynesian views on these issues1-14 Course Outline Required Text:Mishkin,F.S.(2006).The Economics of Money,Banking and Financial Markets(8th ed.)Approach:
15、80%of the time explain the topics of the day,20%time,open for discussion&class participation Assessment:Final Exam:70%;Tutorials&Class participation 30%1-15About the AuthorFrederic S.Mishkin is the Alfred Lerner Professor of Banking and Financial Institutions at the Graduate School of Business,Colum
16、bia University.Since receiving his Ph.D.from the Massachusetts Institute of Technology in 1976,he has taught at the University of Chicago,Northwestern University,Princeton University and Columbia.He has also received an honorary professorship from the Renmin University of China.His research focuses
17、on monetary policy and its impact on financial markets and the aggregate economyHe has published over 150 papers in journals as American Economic Review,Journal of Political Economy,Econometrica,Quarterly Journal of Economics,Journal of Finance,Journal of Monetary Economics.1-16Syllabus Part I Intro
18、duction1.Why study money,banking,and financial markets?2.An overview of the Financial system3.What is money?Part II Financial Markets4.Understanding interest rates5.Behavior of interest rate6.Risk and term structure of interest rates Part III Financial Institutions9.Banking firm and management of fi
19、nancial institutions10.Banking industry:structure and competition11.Economic analysis of banking regulation1-17 Part IV Central Banking and Conduct of Monetary Policy14.Structure of central banks and federal reserve system(Reading Only)15.Multiple Deposit Creation and Money supply process16.Determin
20、ants of money supply17.Tools of Monetary Policy18.Conduct of Monetary policy:Goals and Targets(Reading Only)Part VI Monetary Theory22.Demand for money23.Keynesian Framework and IS-LM Model25.Aggregate Demand and Aggregate Supply Model1-18Sources www.aw- for more information of the book http:/www0.gs
21、b.columbia.edu/faculty/fmishkin/for more about Frederic S.Mishkin To look for data,go to http:/www.federalreserve.gov/econresdata/default.htm Email: Pin:moneybank Chapter 1Why Study Money,Banking,and Financial Markets?1-201-211-22 Financial Markets help in transferring funds from people with excess
22、funds to people with productive use and ideas but have a shortage of funds.They have significant impact on our daily life as they are involved in huge flow of fund in our economy.Financial markets will affect 1-23 Well functioning Financial Markets are a key factor in producing high economic growth
23、Poor management of Financial Markets is one reason that many countries remain desperately poor Financial market activities also have direct effects on personal wealth the behavior of business and consumers cyclical performance of the economy1-24 A Security or a Financial Instrument is a claim on iss
24、uers future income or asset(e.g.any financial claim or piece of property owned)A Bond is a debt security a promise to make payments periodically for a specific period of time Bond Market is typically important for economic activity.It enables corporations and governments to borrow to finance their a
25、ctivities It is the Bond Market where Interest Rates are determined 1-25 It is the cost of borrowing or the price paid for the rental of funds.There are number of different interest rates(e.g.mortgage interest rate,car loan rates,house loan rates,and bond rates)Changes in interest rates have importa
26、nt effects on individuals,financial institutions,businesses,and the overall economy.High interest rate discourages consumption But encourages savings Can influence business decisions on same grounds and thus retard economic activity,affect employment and so on and forth 1-26A further look at Bond Ma
27、rket will be in Chapter 2,4,5,6 1-27 A place where stocks are traded What is a stock?A share of ownership in a corporation It is a claim on the earnings&assets of the corporation It is a way to finance corporations activities 1-28The stock market is the most widely followed financial market in almos
28、t every nationIt is a place where people can get rich or poor quickly.on“Black Monday,Oct 19,1987,DowJones fell by 22%.with the collapse of the internet bubble in 2000,the stock market dropped by over 30%and some stocks dropped more than 90%by late 2002.On Oct 6,2008,DowJones fell by 800 point to th
29、e level of below 10,000These fluctuations in stock prices affect peoples wealth and can effect their willingness to spendThe stock market is an important factor in business investment decisions,because the price of shares affects the amount of funds that can be raised by selling newly issued stock(I
30、PO)to finance investment spending1-29US Stock Market:1950-2005 1-301-31China Stock Market:1992-2008We shall follow up issues on stock market in Chapter 2&7 1-32 This market is used to transfer funds from one country to anotherIt is important because it is the place where exchange rate price of one c
31、urrency in terms of the other is determined It is relative price of two currency and therefore can be quoted in two ways(e.g.RMB￥/US$or US$/RMB￥)Fluctuations in exchange rate have direct implications for an economyAppreciated RMB is good for imports but not so good for exports Strong RMB benefit con
32、sumers but exports become more expensive for foreigners1-331-34 Financial system is complex and comprise of many different types of private sector financial institutions Financial Intermediaries institutions that borrow funds from people who have saved and make loans to other peopleBanks institution
33、s that accept deposits and make loansOther Financial Institutions insurance companies,finance companies,pension funds,mutual funds and investment banks Financial Innovation in particular,the advent of the information age and e-finance1-35 Chapter 9:How banks and other financial institution manage th
34、eir assets and liabilities Chapter 10:Look at banking industry Chapter 11:Understand why bank regulation takes the form it does and what can go wrong in the regulatory process1-36Money,also referred as Money supply,is defined as anything that is generally accepted in payment of goods and services.Mo
35、ney is linked to the changes in economic variables that are key to the health of the economyMoney and Business Cycle Evidence suggests that money plays an important role in generating business cycles(recession,trough,expansion and peak)Recessions(unemployment)and booms(inflation)affect all of usMone
36、tary Theory ties changes in the money supply to changes in aggregate economic activity and the price level1-37Shaded areas represent recessions The rate of money growth has declined before every recession,indicating that changes in money might be a driving force behind Business cycle fluctuations1-3
37、8 It is the rate at which price level changes in an economy over a specific period of time It affects individuals,businesses,and government thus regarded as an important problem to be solved1-39Price level and money supply generally move together 1-40 Data shows a connection between the money supply
38、 and the price level from 1950 to 2005,the price level has increased more than six foldthe price level and the money supply generally rise together.Inflation is usually caused by continued increase in money supply too much money chasing too few goods Milton Friedman,a Nobel Laureate:inflation is alw
39、ays and everywhere a monetary phenomenon.1-411-42 In addition to other factors,money plays an important role in interest-rate fluctuations Interest rates are the price of money Prior to 1980,the rate of money growth and the interest rate on long-term Treasury bonds were closely tied Since then,the r
40、elationship is less clear but still an important determinant of interest rates1-431-44It is the management of money and interest ratesCentral Bank is the main responsible authority to manage monetary policyMoney affect almost all the economic variablesIt is a matter of concern for politician and pol
41、icy makers throughout the world 1-45Monetary policy is the management of the money supply and interest ratesCentral bank is responsible for a nations monetary policy Conducted in the US by the Federal Reserve Bank Conducted in China by the Peoples Bank of China 1-46A simplified approach to the deman
42、d for assetsThe concept of equilibriumBasic supply and demand to explain behavior in financial marketsThe search for profitsAn approach to financial structure based on transaction costs and asymmetric informationAggregate supply and demand analysis1-47www.federalreserve.gov/releases/H151-481-491-50A
43、ggregate OutputGross Domestic Product(GDP)=Value of all final goods and services produced within the economy during a yearAggregate IncomeTotal income from factors of production(land,capital,labor)during the yearNominal vs.Real Nominal=values measured using current pricesReal=quantities,measured wit
44、h constant pricesAggregate Price LevelGDP Deflator=Nominal GDP/Real GDPConsumer Price Index(CPI)price of“basket”of goods and services 1-51 One measure of the price level is the GDP deflator GDP deflator=RealGDPNominalGDP1-52Another measure is the Consumer Price Index(CPI)The CPI is an index that com
45、pares the price of a marketbasket of goods and services in one period with the price ofthe same(or highly similar)market basket in a base period,currently 1982-1984.The CPI includes some 300 products that are presumably purchased by the typical consumer.CPI for any particular year =price of the most
46、 recent market basket in the particular year/price of the same market basket in 1982-19841-5311Growth Rate100tttxxx$9.5 trillion$9 trillionGDP Growth Rate1005.6%$9 trillion1-54 Inflation is a rise in the general level of prices in an economy The rate of inflation for a certain year is found by comparing,in percentage terms,that years index with the index in the previous yearExample:the CPI rose from 111 in 2003 to 113 in 2004113 111Inflation Rate1001.8%111
