This presentation introduces money and the financial system. It defines key components of the financial system including financial instruments, financial markets, financial institutions, and central banks. It then outlines the five core principles of money and banking: 1) Time has value, 2) Risk requires compensation, 3) Information is the basis for decisions, 4) Markets determine prices and allocate resources, and 5) Stability improves welfare. Each principle is briefly explained in terms of how it relates to concepts in money and banking.
3. Course Name:
Money and banking
Topic of presentation:
introduction to money & the financial system.
Parts of financial system & the five core
principles of money and banking
4.
5.
6.
7. A financial system (within the scope
of finance) is a system that allows the
exchange of funds between lenders,
investors, and borrowers. Financial
systems operate at national, global, and
firm-specific levels. ... Money, credit,
and finance are used as media of
exchange in financial systems.
Financial
system:
8.
9. Financial instruments are assets that
can be traded. They can also be seen as
packages of capital that may be traded.
... These assets can be cash, a
contractual right to deliver or receive
cash or another type of financial
instrument, or evidence of one's
ownership of an entity.
10. A financial market is
a market in which people trade
financial securities,
commodities, and other
fungible items of value at low
transaction costs and at prices
that reflect supply and demand.
Securities include stocks and
bonds, and commodities
include precious metals or
agricultural products.
11. A financial institution is an establishment
that conducts financial transactions such as
investments, loans and deposits. Almost
everyone deals with financial
institutions on a regular basis. Everything
from depositing money to taking out loans
and exchanging currencies must be done
through financial institutions.
12. A central bank, or monetary
authority, is a monopolized and
often nationalized institution given
privileged control over the
production and distribution of
money and credit. In modern
economies, the central bank is
responsible for the formulation
of monetary policy and the
regulation of member banks.
13. Five core principle of money and
Banking
TIME has value
RISK requires compensation
INFORMATION is the basis for decisions
MARKETS determine prices and allocation resources
STABILITY improves welfare
14. TIME
Time has value and inflation adversely
affects value. Time affects decisions on
immediate or later consumption, investment
and compound interest earnings. Lenders
will demand compensation for parting with
their money and getting it back slowly over
time. Borrowers are will to give this
compensation in returns for getting the
needed funds today.
TIME
Time has value and inflation
adversely affects value. Time affects
decisions on immediate or later
consumption, investment and
compound interest
earnings. Lenders will demand
compensation for parting with their
money and getting it back slowly
over time. Borrowers are will to give
this compensation in returns for
getting the needed funds today.
15. RISK
Risk (potential losses) is unavoidable
and requires compensation. Usually
higher risk opportunities have
higher interest rates (i.e. higher
reward). People are will to pay to avoid risk
and that those who assume certain risks
will demand compensation
16. INFORMATION
Information is the basis for decisions .
Problems can arise when there is
asymmetric information. Asymmetric
information occurs when one individual
may have more knowledge than the other in
a transaction, which makes decision
making inefficient.
17. MARKETS SET PRICES AND ALLOCATE
RESOURCES.
Fundamental factors of production are scarce
resources, and we have unlimited wants so the
market allocates these scarce resources by
setting a price buyers are willing and able to
pay. (Connect borrowers to lenders). A market
sets a price that rations scarce resources to
those willing and able to pay. Similarly, in the
financial sector markets will determine what
investments get funded.
18. STABILITY
Economic or market stability improves
welfare in the economy. Central banks
work to keep markets and the financial
system stable, which is better for all
individuals.
