BUAD110 Chapter Notes - Chapter 14: Fiscal Policy, Open Market Operation, Deposit Insurance
1 Jun 2018
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CH 14 Book Notes: Understanding the Financial System, Money, and Banking
Learning Objective 1
● Financial systems are composed of:
○ Financial instruments- bonds and stocks
○ Financial markets- money and capital markets and organized & over the counter
markets
○ Financial institutions- depository and nondepository institutions
● Savings are channeled to investments through financial intermediation
● Allocative, operational, and market efficient can lead to great productivity
○ More jobs
○ Higher wages
○ Greater wealth
○ Higher standard of living
Learning Objective 2
● Financial systems classifications
○ Market orientated (United States)
○ Bank centered (germany and japan)
● National government and international agencies can play a vital role in preventing or
diminishing the negative effects of financial crises
● Goal is to limit permanent damage to a country’s economy and foster recovery and
steady growth
Learning Objective 3
● The financial system is an essential building block to healthy economy
● Regulation in areas of deposit insurance, equity capital rules, on-site examinations, and
restrictions on asset powers have been implemented
● Deposit insurance is crucial to maintaining public confidence and preventing bank runs
○ Comes at cost of moral hazard risk
Learning Objective 4
● Problems with currency risk can affect economic conditions in countries as well as
business firms attempting to make payments in international trade
Learning Objective 5
● Quantity theory and related equation of exchange show that money matters in the sense
that it can impact economic output and inflation
● Monetary policy- influenced by central bankjs
○ Tools: reserve requirements, discount rates, open market operations
○ Operating targets: federal funds rates, bank reserves
○ Intermediate targets: long term interest rates, money supply, bank credit
○ Economic goals: output, employment, inflation, internation trade
Document Summary
Ch 14 book notes: understanding the financial system, money, and banking. Financial markets- money and capital markets and organized & over the counter markets. Savings are channeled to investments through financial intermediation. Allocative, operational, and market efficient can lead to great productivity. National government and international agencies can play a vital role in preventing or diminishing the negative effects of financial crises. Goal is to limit permanent damage to a country"s economy and foster recovery and steady growth. The financial system is an essential building block to healthy economy. Regulation in areas of deposit insurance, equity capital rules, on-site examinations, and restrictions on asset powers have been implemented. Deposit insurance is crucial to maintaining public confidence and preventing bank runs. Comes at cost of moral hazard risk. Problems with currency risk can affect economic conditions in countries as well as business firms attempting to make payments in international trade.
