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Money & Banking MGT411

Lesson 1

TEXT AND REFERENCE MATERIAL &

FIVE PARTS OF THE FINANCIALSYSTEM

ThePrimary textbook for thecourse will be

"Money,Banking and Financial Markets" by Stephan G. Cecchetti

InternationalEdition, McGraw Hill Publishers, ISBN0-07-111565-X"

Referencebooks will be

"The Economics of Money, Banking and FinancialMarkets", by Fredrick S. Mishkin

7th Edition Addison Wesley Longman Publishers

"Principles of Money, Banking and FinancialMarkets" by Lawrence S. Ritter,Willaim L.

Silber and Gregory F. Udell, Addison Wesley Longman Publishers

CourseContents

Moneyand the FinancialSystem

Moneyand the PaymentsSystem

Financial Instruments, Financial Markets, and Financial Institutions

Interest rate, financial instruments andfinancial markets

FutureValue, Present Value andInterest Rates

UnderstandingRisk

Bonds, Pricing and Determination of InterestRates

TheRisk and Term Structure of Interest Rates

Stocks,Stock Markets and MarketEfficiency

FinancialInstitutions

Economics of Financial Intermediation

DepositaryInstitutions: Banks and bankManagement

FinancialIndustry Structure

Regulating the financial system

Central Banks, Monetary Policy andFinancial stability

Structure of central banks

Balance sheet and Money Supplyprocess

Monetarypolicy

Exchange rate policy

ModernMonetary Economics

Moneygrowth and Money Demand

Aggregatedemand

BusinessCycle

Output and inflation in the short run

Moneyand Banking in Islam

Monetaryand financial policy and structure for an Interest-free economy

IslamicBanking in the contemporaryworld

FiveParts of the FinancialSystem

Money

Financial Instruments

FinancialMarkets

FinancialInstitutions

Central Banks

1. Money

To pay for purchases

To store wealth

Evolvedfrom gold and silver coins to paper money to today's electronicfunds transfers

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Money & Banking MGT411

TraditionalPaycheck system vs. ATM Withdrawals and Mailed transactionsvs. E-banking

2. Financial Instruments

To transfer wealth from savers to borrowers

To transfer risk to those bestequipped to bear it.

Onceinvesting was an activityreserved for the wealthy

Costlyindividual stock transactions through stockbrokers

Informationcollection was not so easy

Now,small investors have the opportunity to purchase shares in "mutualfunds."

3. Financial Markets

To buy and sell financial instruments quickly and cheaply

Evolvedfrom coffeehouses to tradingplaces (Stock exchanges) to electronic networks

Transactions are much more cheapernow

Marketsoffer a broader array of financial instruments than were available even 50 years ago

4. Financial Institutions

Provideaccess to financialmarkets

Banks evolved from Vaults and developed into deposits- and loans-agency

Today'sbanks are more likefinancial supermarkets offering a huge assortment of financial

products and services forsale.

Access to financial markets

Insurance

Home- and car-loans

Consumercredit

Investmentadvice

5. Central Banks

Monitorsfinancial Institutions

Stabilizes the Economy

Initiated by Monarchs to finance the wars

Thegovt. treasuries have evolvedinto the modern centralbank

Control the availability of money and credit in such a way as to ensure

Lowinflation,

Highgrowth, and

Thestability of the financialsystem