Lecture #1 - money, banking and financial markets. Evolving parts of the financial system: money (mean of payment, store of value, unit of account, financial institutions (banks, security firms, financial markets (stock, bond, financial instruments (stocks, bonds, mortgages, central banks (boc) Financial markets - financial markets are markets in which funds are transferred from people who have excess of funds to people who have a shortage. They allow individuals and firms to share risks to take advantage of different exposures, tolerance, or opinions about risky outcome. Someone may purchase life insurance to share risk about death (i. e. ensure stream of payments for beneficiary) Security - claim on issuer"s future income or asset. Bond - debt security that promises to make payments periodically for specified period of time. Interest rate - cost of borrowing or price paid for rental of funds (percent or base point) Common stock - share of ownership in a corporation.