MGT411 Official Handouts

MGT411 – MONEY& BANKING

Lesson No.

TOPICS

Text and Reference Material & Five Parts of The Financial System…….. Page No.

Financial Intermediaries………………………………………………... Financial Instruments & Financial Markets……………………………..

Time Value of Money…………………………………………………. Application of Present Value Concepts………………………………... Bond Pricing & Risk…………………………………………………... Measuring Risk………………………………………………………… Evaluating Risk………………………………………………………... Bonds & Bonds Pricing………………………………………………... Yield to Maturity………………………………………………………. Shifts in Equilibrium in the Bond Market & Risk……………………… Bonds & Sources of Bond Risk………………………………………... Tax Effect & Term Structure of Interest Rate…………………………. The Liquidity Premium Theory………………………………………... Valuing Stocks…………………………………………………………. Risk and Value of Stocks………………………………………………. Role of Financial Intermediaries……………………………………….. Role of Financial Intermediaries (Continued)………………………….. Banking………………………………………………………………… Balance Sheet of Commercial Banks…………………………………… Bank Risk……………………………………………………………… Interest Rate Risk………………………………………………………. NonDepository Institutions…………………………………………... Non-Depository Institutions (Cont) …………………………………... The Government Safety Net…………………………………………… The Government's Bank……………………………………………….. Low, Stable Inflation…………………………………………………… Meeting the Challenge: Creating a Successful Central Bank…………….. The Monetary Base…………………………………………………….. Deposit Creation in a Single Bank……………………………………… Money Multiplier………………………………………………………. Target Federal Funds Rate and Open Market Operation………………. Why Do We Care About Monetary Aggregates? ………………………. The Facts About Velocity……………………………………………… The Portfolio Demand for Money……………………………………... Money Growth, Inflation, and Aggregate Demand…………………….. Deriving the Monetary Policy Reaction Curve………………………….

Lesson 1 · TEXT AND REFERENCE MATERIAL & · The Primary textbook for the course will be

“Money, Banking and Financial Markets” by Stephan G. Cecchetti International Edition, McGraw Hill Publishers, ISBN 0-07-111565-X”

Reference books will be

“The Economics of Money, Banking and Financial Markets”, by Fredrick S. Mishkin 7th Edition Addison Wesley Longman Publishers “Principles of Money, Banking and Financial Markets” by Lawrence S. Ritter, Willaim L. Silber and Gregory F. Udell, Addison Wesley Longman Publishers

Money and the Financial System

Money and the Payments System

Course Contents

Financial Instruments, Financial Markets, and Financial Institutions

Interest rate, financial instruments and financial markets

Future Value, Present Value and Interest Rates Understanding Risk Bonds, Pricing and Determination of Interest Rates The Risk and Term Structure of Interest Rates Stocks, Stock Markets and Market Efficiency

Economics of Financial Intermediation Depositary Institutions: Banks and bank Management Financial Industry Structure Regulating the financial system

Central Banks, Monetary Policy and Financial stability

Structure of central banks Balance sheet and Money Supply process Monetary policy Exchange rate policy

Modern Monetary Economics

Money growth and Money Demand Aggregate demand Business Cycle Output and inflation in the short run

Money and Banking in Islam

Monetary and financial policy and structure for an Interest-free economy Islamic Banking in the contemporary world

Money

1. Money

To pay for purchases To store wealth Evolved from gold and silver coins to paper money to today’s electronic funds transfers Traditional Paycheck system vs. ATM Withdrawals and Mailed transactions vs. E-banking

2. Financial Instruments

To transfer wealth from savers to borrowers To transfer risk to those best equipped to bear it. Once investing was an activity reserved for the wealthy Costly individual stock transactions through stockbrokers Information collection was not so easy Now, small investors have the opportunity to purchase shares in “mutual funds.”

3. Financial Markets

To buy and sell financial instruments quickly and cheaply Evolved from coffeehouses to trading places (Stock exchanges) to electronic networks Transactions are much more cheaper now Markets offer a broader array of financial instruments than were available even 50 years ago

4. Financial Institutions

Provide access to financial markets Banks evolved from Vaults and developed into depositsand loans-agency Today’s banks are more like financial supermarkets offering a huge assortment of financial products and services for sale. Access to financial markets Insurance Homeand car-loans Consumer credit Investment advice

5. Central Banks

Monitors financial Institutions Stabilizes the Economy Initiated by Monarchs to finance the wars The govt. treasuries have evolved into the modern central bank Control the availability of money and credit in such a way as to ensure Low inflation, High growth, and The stability of the financial system ƒ State Bank of Pakistan

Money