CHAPTER 1

CHAPTER 1. OVERVIEW OF THE STUDY ON MONEY, BANKING AND FINANCIAL MARKETS Prepared by: Fauziana Fauzi @ Mat Rawi.

Please refer to the text book on page 50 – 66 (13th edition)..

3. Financial Markets. bonds. stocks. Financial Institutions.

4. Inflation is a general increase in the prices of goods and services in an economy. This is usually measured using a consumer price index (CPI)..

5. Why Study Money, Banking & Financial Markets?.

Why Study Financial Markets?. 6.

7. Eg. of Financial Markets The Bond Market The Stock Market.

8. Financial Markets – Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage..

9. Which country is the Richest Countries in the World?.

FACT! The Richest Countries in the World 2023. The Race To Be The World's Richest Country/Territory (GDP per capita, constant prices) 50,000 100,000 Ireland Luxembourg Singapore Qatar Macao SAR United Arab Emirates Switzerland Norway United States San Marino Brunei Darussalam Hong Kong SAR Denmark Netherlands Iceland Andorra E 89,558 88,221 87,963 82,655 80,035 78,926 75,583 74,598 73,386 72,973 69,779 68,998 145,196 142,490 133,895 124,834 2023 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023.

Debt Market & Interest Rates. 11.

12. What is Debt Market?. [image]. What is Interest Rates?.

A security (also called a financial instrument) is a claim on the issuer’s future income or assets (any financial claim or piece of property that is subject to ownership). A bond: A debt security that promises to make periodic payments for a specific period. Debt market, also often generically referred to as bond market is especially important to economic activity because they enables corporations and governments to borrow money to finance their activities and because it is where interest rates are determined..

Interest rate – Cost of borrowing/the price paid for the rental of funds (usually expressed as a percentage of the rental). Types of interest rates – mortgage interest rates, car loan rates & interest rates on many different types of bonds. The Importance of interest rates: Personal level: High-interest rates might deter you from buying a house/a car because the cost of financing would be high. High interest rates might encourage saving because you can earn more interest income. High interest rates might cause a corporation to postpone building a new plant that would provide more jobs. Because changes in interest rates affect individuals, financial institutions, businesses, and the overall economy, it is important to explain substantial fluctuations in interest rates over the past 35 years..

Figure 1 Interest Rates on Selected Bonds, 1950–2017.

Dalam banyak – banyak nasi, nasi apa yang boleh bergerak sendiri?.

Nasi goreng pattaya (sebab ada 4 tayar). 17. cru.

The Stock Market. 18.

A common stock represents a share of ownership in a corporation. A security that is a claim on the earnings and assets of the corporation. Issuing stock and selling it to the public is a way for corporations to raise funds to finance their activities. A big swing in the prices of shares in the stock market is always a major story on the evening news. People often speculate on where the market is heading and get very excited when they can brag about their latest “big killing’ but they become depressed when they suffer a big loss. The attention the market receives can probably be best explained by one simple fact: It is a place where people can get rich or poor very quickly..

The stock market is also 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 to finance investment spending. A higher price for a firm’s share means that the firm can raise a larger amount of funds, which it can then use to buy production facilities and equipment..

Figure 2 Stock Prices as Measured by the Dow Jones Industrial Average, 1950–2017.

TRY THIS!. (1) Financial markets promote economic efficiency by A) channeling funds from investors to savers. B) creating inflation. C) channeling funds from savers to investors. D) reducing investment..

TRY THIS!. (2) Well-functioning financial markets promote A) inflation. B) deflation. C) unemployment. D) growth..

TRY THIS. (3) High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving. A) discourage; encourage B) discourage; discourage C) encourage; encourage D) encourage; discourage.

Which country have the highest population in the world?.

Fact! Countries with the Highest Populations. 26.

Why Study Financial Institutions and Banking?. Banks and other financial institutions are what make financial markets work. Without them, financial markets would not be able to move funds from people who save to people who have productive investment opportunities..

Structure of the Financial System. Complex, comprising many different types of private sector financial institutions – banks, insurance companies, mutual funds, finance companies, investment banks (heavily regulated by the gov.) If an individual wanted to make a loan to IBM/General Motors, he would lend to such a company indirectly through financial intermediaries – institutions that borrow funds from people who have saved and in turn make loans to people who need funds..

Banks and Other Financial Institutions. Banks are financial institutions that accept deposits and make loans. Term banks includes firms – commercial banks, savings and loan associations, mutual savings bank and credit union. Banks are the financial intermediaries that the average person interacts with most frequently. A person who needs a loan to buy a house/a car usually obtains it from a local bank. Other financial institutions – insurance companies, finance companies, pension funds, mutual funds and investment banks have been growing at the expense of banks..

TRY THIS!. (4) Financial institutions that accept deposits and make loans are called ________. A) exchanges B) banks C) over-the-counter markets D) finance companies.

Why Study Money and Monetary Policy?. Money = money supply. Anything that is generally accepted as payment for goods and services or in the repayment of debts. Linked to changes in economic variables that affect all of us and are important to the health of the economy..

Money and Business Cycle. Money plays an important role in generating business cycles, the upward and downward movement of aggregate output produced in the economy. Business cycles affect all of us in immediate and important ways. When output is rising, it is easier to find a good job; when output is falling, finding a job might be difficult. Figure 3: Rate of money growth declined before most recession, indicating that changes in money growth might be a driving forces behind business cycle fluctuations. However, declines in the rate of money growth are often not followed by a recession..

Figure 3 Money Growth (M2 Annual Rate) and the Business Cycle in the United States, 1950–2017.

1. 2. The Business Cycle. arn17456_0607. 3. 4. 1.

BUSINESS CYCLE PATTERN. Time (years). National Output.

Antara Petronas dan Shell, mana satu yang sesuai dibuat kawan?.

Petronas. Petronas Mesra, Shell Select. 37. ' —SELECT..

Money and Inflation. Inflation – a continual increase in the price level, affects individuals, businesses and the government. It is generally regarded as an important problem to be solved and is often at the top of political and policy making agendas. What explain inflation? Plots the money supply vs the price level. The price level and the money supply generally rise together. Continuing increase in the money supply might be an important factor in causing the continuing increase in the price level that we call inflation..

Figure 4 Aggregate Price Level and the Money Supply in the United States, 1960–2017.

Figure 5: Show a positive association exists between inflation and the growth rate of the money supply. The countries with the highest inflation rates are also the ones with the highest money growth rates – Russia, Turkey. Japan and Euro area experienced low inflation rates and their rates of money growth were low..

Figure 5: Average Inflation Rate Versus Average Rate of Money Growth for Selected Countries, 2006–2016.

Milton Friedman – Inflation is always and everywhere a monetary phenomenon..

Money and Interest Rates. Money plays an important role in interest-rate fluctuations, which are of great concern to business and consumers. Figure 6: Shows changes in the interest rate on long-term treasury bonds and the rate of money growth from 1950 to 2017. As the money growth rate rose in the 1960s and 1970s, the long-term bond rate rose with it..

Figure 6 Money Growth (M2 Annual Rate) and Interest Rates (Long-Term U.S. Treasury Bonds), 1950–2017.

TRY THIS!. (5) Money is defined as A) bills of exchange. B) anything that is generally accepted in payment for goods and services or in the repayment of debt. C) a risk-free repository of spending power. D) the unrecognized liability of governments..

TRY THIS!. (6) During a recession, output declines resulting in A) lower unemployment in the economy. B) higher unemployment in the economy. C) no impact on the unemployment in the economy. D) higher wages for the workers..

Conduct of Monetary Policy. Because money affects many economic variables that are important to the well-being of our economy, politicians and policy makers throughout the world care about the conduct of monetary policy – the management of money and interest rates. The organization responsible for the conduct of a nation’s monetary policy is the central bank. The Malaysia’s Central Bank is Bank Negara Malaysia..

Fiscal Policy and Monetary Policy. Fiscal policy involves decisions about government spending and taxation. A budget deficit is an excess of government expenditures with respect to tax revenues for a particular time period, typically a year. Budget surplus arises when tax revenues exceed government expenditures. The government must finance any budget deficit by borrowing, whereas a budget surplus leads to a lower government debt burden..

Figure 7 Government Budget Surplus or Deficit as a Percentage of Gross Domestic Product, 1950–2016.

TRY THIS!. (7) ________ policy involves decisions about government spending and taxation. A) Monetary B) Fiscal C) Financial D) Systemic.