Money And Banking BE220 Ahmed Alharbi

Structure of a Financial System The financial system is complex, comprising different financial institutions such as: Banks Insurance companies Mutual funds Finance companies Investment banks Financial intermediaries Pension funds

Banks And Other Financial Institutions Banks: financial institutions that accept deposits and make loans. Examples: Commercial banks Mutual savings banks Credit unions Insurance companies Pension funds

Banks are the largest financial institutions. An individuals approaches a bank when he/she needs a loan to buy a house or a car.

Financial Innovation E-finance Financial services are delivered electronically. No need to see a human teller. Examples ATM’s Net banking Phone banking

Money and Business Cycle Aggregate Output: total production of goods and services. Unemployment rates: the percentage of available unemployed labor force. Business Cycle: the upward and downward movement of aggregate output produced in the economy. Recession: periods of declining aggregate output. Monetary Theory: changes in the quantities of money positively affect changes in aggregate economic activity and the price level.

Money and Inflation Aggregate price level: the average price of goods and services in an economy. Inflation: a continual increase in the price level affecting individuals, businesses and government.

Money and Interest Rates There is a positive relationship between the interest rates in long-term Treasury bonds and the rate of money growth.

Fiscal Policy and Monetary Policy Fiscal Policy: involves decisions about government spending and taxation. Monetary Policy: management of money and interest rate. Central Banks: responsible for the conduct of a nation’s monetary policy.

Fiscal Policy and Monetary Policy Budget deficit Budget surplus Gross Domestic Product (GDP).

Meaning of Money Currency Wealth Income

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Functions of Money Medium of Exchange Units of Account Store of Value

Evolution of Payment System Commodity Money Fiat Money Checks Electronic Payments