Unit 1 Study Guide
Unit 1 Study Guide FINA 30203
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This 0 page Study Guide was uploaded by Tierney Johnson on Tuesday February 16, 2016. The Study Guide belongs to FINA 30203 at Texas Christian University taught by Dr. Ed Ireland in Spring 2016. Since its upload, it has received 51 views. For similar materials see Money and Banking in Finance at Texas Christian University.
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The content was detailed, clear, and very well organized. Will definitely be coming back to Tierney for help in class!
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Date Created: 02/16/16
Money amp Banking Unit One Chapter One 1 Recession of 20072009 A Causes 1 Followed a financial crisis I a significant disruption in the ow of funds from lenders to borrowers 2 Was encouraged by risky investments and subprime mortgages 3 Housing bubble I unsustainable increase in the price of a class of assets a Fannie Mae and Freddie Mac 4 Fed funds rate was dropped to 1 to encourage borrowing and spending 11 Key Components of the Financial System A Financial Assets 1 Financial Asset I an asset that represents a claim on someone else for a payment 2 Security I financial asset that can be bought and sold in a financial market 3 Assets include money stocks bonds foreign exchange securitized loans a Securitized Loans I asset from the viewpoint of the bank and a liability from the viewpoint of the borrower B Financial Institutions 1 Banks and other financial intermediaries ex investment banks insurance companies a Commercial banks are the most important financial intermediaries 2 Financial markets a Facilitate direct and indirect ows b Primary and secondary markets C The Federal Reserve 1 Two policies low in ation no unemployment 2 Government and Fed should be separated 3 Responsible for monetary policy Chapter Two I Barter Economy A Inefficiencies 1 Double coincidence of wants I increases transaction costs 2 Each good has many prices 3 Lack of standardization exists for goods and services 4 Difficult to accumulate wealth II Invention of Money A Commodity vs Fiat Money 1 Commodity Money I a good used as money that also has value independen of its use as money 2 Fiat Money I can only be used as paper money and nothing else 3 Transition easier to maintain store and reproduce B Wealth 1 Money is a part of wealth I sum of the value of a person s assets minus the value of the person s liabilities 2 A person typically has considerably less money than income or wealth III Measuring Money Supply A Money Aggregates 1 M1 I narrow currency in circulation checking account deposits and holding of travelers checks 2 M2 I wide includes basically every type of money B Quantity of Theory of Money 1 The theory about the connection between money and prices that assumes that the velocity of money is constant a Not helpful in prediction shortrun forecasts due to velocity volatility 2 MV real adjusted PY nominal GDP 3 In ation Rate Change in M Change in Y 4 Velocity I the circulation of money throughout the economy low when it is held high when it is spent Chapter Three 1 The Interest Rate PV FV A Time Value Money 1 The value of a dollar today is worth more than a dollar tomorrow 2 High risk of default generally means you will pay a high interest rate therefore interest rates vary with risk
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