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ECON 351 (13)

Chapter 1_Introducing Money and the Financial System

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ECON 351
Frank Sorokach

Chapter 1: Introducing Money and the Financial System  Key components of the Financial System: 1. FinancialAssets 1) Money 2) Stocks 3) Bonds 4) Foreign Exchange 5) Securitized Loans 2. Financial Institutions – matches savers and borrowers through two channels a) Banks and other financial intermediaries b) Financial Market and these two channels are distinguished by how funds flow from savers, or lenders, to borrowers and by the financial institutions involved a. Indirect Finance – if you get a loan from a bank to buy a car, the flow is indirect because funds the bank lends to you come from people who have put money in checking or savings deposits in bank b. Direct Finance – if you buy a stock that a firm has just issued because the funds are flowing directly from you to the firm 1) Financial Intermediaries - Commercial Banks 2) Nonbank Financial Intermediaries - Investment Banks - Insurance Companies - Pension Funds - Mutual Funds - Hedge Funds 3) Financial Market - Primary Market - Secondary Market 3. The Federal Reserve and Other Financial Regulators - Securities and Exchange Commission [SEC] –regulates financial market - Federal deposit Insurance Corporation [FDIC] – insures deposits in banks up to a limit of $250,000 per account. - The Office of the Comptroller of the Currency [OCC] – regulates federally chartered bank 1) The Federal Reserve – 1913 - Run by Board of governs which consist of
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