financial markets and the special case of money
TRANSCRIPT
Financial Markets and the Special Case of Money
FAIZAN ARIFMBAEV/1-10/016
PLAN OF PRESENTATION The Modern Financial System
The Special Case Of Money
Banking And The Supply Of Money
The Stock Market
“The Modern Financial System”
The Role of the Financial System
Financial Markets
Financial Intermediaries
The Functions Of The Financial System
Transfers Resources
Manages Risks
Pools and Subdivides Funds
Clearinghouse Function
The Flow of Funds
A Menu Of Financial Assets
Money Saving Accounts Government Securities Equities Pension Funds
Interest Rates and the return on Financial Assets
Loan
Liquid Assets
Illiquid Assets
Real Interest Rates
Nominal Interest Rates
VS
Versus
“THE SPECIAL CASE OF MONEY”
The History of Money
Barter System
Commodity Money
Modern Money
Components Of The Money Supply
Narrow (Transaction) Money (M1)
Broad Money (M2)
Function of Money
Medium of Exchange
Unit of Accounts (measurable)
Store Of Value
“BANKING AND THE SUPPLY OF MONEY”
BANKING AND THE SUPPLY OF MONEY
How Banks Developed from Goldsmith Establishments
Assets Liabilities
Reserves $ 1,000,000.00 Demand Deposits $ 1,000,000.00
Total $ 1,000,000.00 Total $ 1,000,000.00
Goldsmith Balance Sheet
* Bank Held 100% Cash Reserves against Demand
How Deposits Are Created:First-Generation Banks
First-Generation Bank Balance Sheet
Bank 1 Initial Position
Assets Liabilities
Reserves $ 1,000.00 Demand Deposits $ 1,000.00
Total $ 1,000.00 Total $ 1,000.00
First-Generation Bank Balance Sheet
Bank 1 Final Position
Assets Liabilities
Reserves $ 100.00 Deposits $ 1,000.00
Loans & Investments $ 900.00
Total $ 1,000.00 Total $ 1,000.00
Second-Generation Banks
Second -Generation Bank Balance Sheet
Bank 2 Initial Position
Assets Liabilities
Reserves $ 900.00 Demand Deposits $ 900.00
Total $ 900.00 Total $ 900.00
Second-Generation Bank Balance Sheet
Bank 2 Final Position
Assets Liabilities
Reserves $ 90.00 Deposits $ 900.00
Loans & Investments $ 810.00
Total $ 900.00 Total $ 900.00
FINAL SYSTEM EQUILIBRIUMPosition of Bank New Deposits
New Loans and Investments
New Reserves
Original Banks $ 1,000.00 $ 900.00 $ 100.00
2ndGeneration banks $ 900.00 $ 810.00 $ 90.00
3rdGeneration banks $ 810.00 $ 729.00 $ 81.00
4thGeneration banks $ 729.00 $ 656.10 $ 72.90
5thGeneration banks $ 656.10 $ 590.49 $ 65.61
6thGeneration banks $ 590.49 $ 531.44 $ 59.05
7thGeneration banks $ 531.44 $ 478.30 $ 53.14
8thGeneration banks $ 478.30 $ 430.47 $ 47.83
9thGeneration banks $ 430.47 $ 387.42 $ 43.05
10thGeneration banks $ 387.42 $ 348.68 $ 38.74
Sum of 1st 10 generation of banks $ 6,513.22 $ 5,861.89 $ 651.32
: : : :
Remaining banks 3,486.78 3,138.11 348.68
Total for banking system as a whole 10,000.00 9,000.00 1,000.00
* Multiple expansion of banks deposits
“THE STOCK MARKET”
Bubbles And Crashes
Firm Foundations
Psychology
Efficient Market and the Random Walk
Thank You!
Presenter: Mr. Faizan Arif | Source: Economics by Samuelson 18th Edition | Venue: Dadabhoy Institute of Higher Education | Software: Microsoft Power Point | Topic: Financial Markets and the Special Case of Money | Concept & Design: Faizan Arif