1. Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 1 Introducing Money, Banking, and Financial Markets

2. 1-2 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Learning Objectives See the importance of money, banking, and financial markets Understand possible careers that use the skills and knowledge gained through studying this topic

3. 1-3 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Introduction of Concepts Financial Markets/Institutions –Bringing together of buyers and sellers of financial securities to establish prices –The formal setting/mechanism that brings buyers and sellers together to value financial assets –Provides a mechanism for those with excess funds (savers) to lend to those who need funds [borrowers] –Includes banks, savings and loans, credit unions, investment banks and brokers, mutual funds, stock and bond markets

4. 1-4 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Introduction of Concepts (Cont.) Money –“Lubricant that greases the wheels of economic activity” –Not just limited to currency (bills and coins)—also includes demand deposits (checking accounts) issued by banks –Plays a key role in influencing the behavior of the economy as a whole and the performance of financial institutions and markets

5. 1-5 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Introduction of Concepts (Cont.) Money (Cont.) –More broadly the monetary economy Facilitates transactions within the economy Principal mechanism through which central banks attempt to influence aggregate economic activity –Economic Growth –Employment –Inflation

6. 1-6 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Introduction of Concepts (Cont.) Banking –Banks and other financial intermediaries take funds from one group (savers) and re-deploy 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 –Well-equipped to invest in the most challenging types of financial investments—loans to individuals and small businesses

7. 1-7 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Introduction of Concepts (Cont.) Banking (Cont.) –Banks serve as the principal caretaker 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