Introducing Money, Banking, and Financial Markets Chapter 1 Introducing Money, Banking, and Financial Markets

Table of Contents, Glossary, Index Key Words (Vocabulary) Lesson 1 Objectives Table of Contents, Glossary, Index Key Words (Vocabulary) Why study money, banking and financial markets? Introduction of Concepts Activity – Writing a Check Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

1. Table of Contents, Glossary, Index Table of Contents vii – xxii What we will cover in this class: Part I – The Basics Part II – Financial Instruments & Markets Part III – Banks & Other Financial Intermediaries Part IV – Will not cover Part V – The Art of Central Banking Part VI – Monetary Theory Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

1. Table of Contents, Glossary, Index Glossary (pages 591-607) Definitions of Key Words (Vocabulary) – These are financial terms, words you will need to know. You will also find a glossary on my website: www.businessatsias.weebly.com. Index (pages 609-627) The placed to look to find the page for important words and concepts. Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Financial Institutions – p. 3, 597 Financial Intermediaries – p. 597 2. KEY WORDS - VOCABULARY Financial Markets – p. 3, 597 Financial Institutions – p. 3, 597 Financial Intermediaries – p. 597 Money – p. 3, chapter 2 Demand Deposits (Checking Accounts) – p. 14 Chapter 2, 593, 594 Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Federal Reserve, Central Bank, The “FED” – p. 4, 596 2. KEY WORDS - VOCABULARY Banking and Banks – p.3 Federal Reserve, Central Bank, The “FED” – p. 4, 596 Federal Deposit Insurance Corporation (FDIC) – p. 6, 596, 614 (10-11, 292, 294) Bank Examiner – p. 6, 10, 11 Loan Officer – p. 6, 266 Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Why Study Money, Banking, and Financial Markets? For discussion To examine how financial markets such as bond, stock and foreign exchange markets work To examine how financial institutions such as banks and insurance companies work To examine the role of money in the economy To find out about jobs and a career Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

3. Introduction of Concepts Financial Markets/Institutions Bringing together of buyers and sellers of financial securities (stocks and bonds) to establish prices The place that brings buyers and sellers together to value financial assets Provides a way for those with money (savers) to lend to those who need money or funds [borrowers] Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Financial Markets – Another way to define markets Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage of funds Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

3. Introduction of Concepts Financial Intermediaries are Institutions 中介 Zhōngjiè such as: Banks Savings and Loans Credit Unions Investment Banks and Brokers Mutual Fund Companies Stock and Bond Markets Insurance Companies Pension Fund (retirement) Companies We will learn more about these institutions later in the course, Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Explanation of terms For purposes of this class, the terms: Financial Intermediary Financial Institutions Banks Basically mean the same thing! Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

3. Introduction of Concepts (Cont.) Money “Lubricant that greases the wheels of economic activity” Not just currency (bills and coins)—also includes demand deposits (checking accounts) issued by banks Plays a key role in influencing the behavior 行为 Xíngwéi of the economy as a whole and the performance of financial institutions and markets Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Introduction of Concepts (Cont.) Money (Cont.) Is more than just what we spend but refers to the monetary economy Makes for easy transactions 交易 Jiāoyì within the economy Principal “machine” through which central banks attempt to influence total, or all economic activity Economic Growth Employment Inflation Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

In Class Activity 4. Writing a check – checking account Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Check writing continued Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Check writing Continued Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Checking writing continued Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

In class activity Write out a check using the previous guideline for an item you would like to buy. What would it cost? Examples: Phone Computer Train ticket home Textbook for school Gift for a friend Present for your teacher! Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Introduction of Concepts (Cont.) Banking Banks and other financial intermediaries (中介 Zhōngjiè) take funds from one group (savers) and transfer these funds by investing or lending (borrowers). Banks provide a place where individuals and businesses can invest their funds to earn interest with a minimum of risk Equipped to invest in the most challenging types of financial investments—loans to individuals and small businesses Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Introduction of Concepts (Cont.) Banking (Cont.) Banks serve as the main institution of the economy’s money supply, and along with other financial intermediaries, provide important source of funds Banks are intimately involved in how the central bank of the United States (Federal Reserve) [Fed] influences overall economic activity Monetary policy—the Fed directly influences the lending and deposit creation activities of banks Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Chapter Summary Savers and borrowers are the prime players in setting the prices in the financial markets. Financial intermediaries (institutions such as banks) are the players who bring together the savers and borrowers together. Money is the “tool” that fuels or makes the economy go. Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Chapter Summary The Central Bank or the “Fed” (in the US) influences the economic activity of a country creating the monetary policy. The FED directly influences the activity of the financial intermediaries or banks which in turn affects the behavior of the savers and borrowers and the use of money. Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

COURSE OVERVIEW ILLUSTRATION Savers Borrowers and and Lenders Spenders Financial Intermediaries (Banks) Financial Markets Money + Fed = Monetary Policy Copyright © 2004 Pearson Addison-Wesley. All rights reserved.

Homework – Savers and Borrowers Activity SAVERS – Questions to consider How have you made money? What kind of jobs have you had? How much money have you saved? How much do you invest? In real estate? In stocks or bonds? How do you spend your money? Budget? Income Expenses You will have a leader, spokesman, a secretary, treasurer, assistant leader and researcher in your group Team name for your group:_________________________________ Copyright © 2004 Pearson Addison-Wesley. All rights reserved.