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Category: Business and Industry
Date Submitted: 12/09/2011 09:29 PM
mDue September 7th
Chapter 1 # 1-4,7
Chapter 2 # 1-5, 8-11
Money Banking Summary
Chapter 1 Introducing Money and the Financial System
Financial system: a network of markets and institutions to bring saver and borrowers together
IOUs or Financial Instrument: assets for saves and liabilities for borrowers.
3 key financial services: risk sharing, liquidity, and information
Financial Markets Vs. Financial Institutions
Chapter 1 Question 1-4, 7
1. Could a central planning agency allocate funds between savers and borrowers more efficiently than many different financial institutions?
Central planning agency would be efficient only in a small community where people are reachable. In real world, however, central planning is not efficient since every individual has different need at different period of time. These financial institutions will serve as intermediaries between savers and borrowers who would refer to the institutions when both parties need to meet their needs.
2. Why are financial instruments like IOUs? Explain why financial instruments are assets for savers but liabilities for borrowers
Financial instruments are like IOUs because it is a form of financial claim between savers who transfer the excess money to borrowers who need money to fund their needs and will repay back the savers in a form of interest. They are assets for savers—who owns the right to receive future payments for borrower and liabilities for borrowers—who owe the money to savers.
3. What are the three main services offered by financial institutions? Describe each briefly.
The three main services are:
1. Risk Sharing: Reduce the uncertainty of savers and borrowers to which they are exposed.
2. Liquidity : measures how easily can assets be exchanged for cash
3. Information : the ease of finding the right match between savers and borrowers
4. Who determines the money supply? Who determines monetary policy?
Federal Reserve System,...