Essentials of Money, Banking and Financial Institutions (eBook)

Samuel K. Andoh is a professor in the Economics and Finance Department at the School of Business at Southern Connecticut State University.

Table of ContentsINTRODUCTIONChapter 1Money, Banking and Financial MarketsThe Financial System: Markets & Institutions The Scope of BookFinancial System: MarketsThe Importance of Financial Markets to Economic DevelopmentFinancial IntermediariesSome Facts about the Financial System across the WorldThe Special Role of Money in Financial MarketsChapter SummaryKey ConceptsProblems and ApplicationsMONEYChapter 2The Concept of MoneyFunctions of MoneyMedium of ExchangeStore of Value Unit of AccountWhat Constitutes MoneySeparability of the Functions of Money Measuring MoneyDebit and Credit Cards The Special Role of Money in the EconomyChapter SummaryKey ConceptsProblems and ApplicationsINTEREST RATEChapter 3The Concept of Interest RatesMeasuring Interest Rate: Preliminary IdeasMeasuring the interest rateSimple Interest Loans Fixed-Payment LoansCoupons Discount BondsThe Rate of ReturnChapter SummaryKey ConceptsProblems and ApplicationsChapter 4Determination of Interest RateLoanable Funds Approach/Demand and Supply of BondsDemand for Bonds: FactorsWealthExpected Returns on bonds and other assetsExpected inflationExpected risk-of defaultLiquiditySummarySupply of BondsGovernment Budget Deficit/SurplusBusiness Expected Profitability Business Taxation or Subsidies Expected InflationSummaryLiquidity Preference ApproachDemand for MoneyIncomeWealthThe Price LevelMoney Supply and its effects on Interest RateChapter SummaryKey ConceptsProblems and ApplicationsChapter 5Risk & Term Structures of Interest Rates Risk Structure of Interest RatesDefault RiskLiquidityTax ImplicationsTerm Structure of Interest RatesExplaining the Shape of the Yield Curve Expectations Hypothesis Liquidity Premium HypothesisSegmented markets hypothesisPreferred habitat hypothesisInformation Content of the Yield CurveChapter SummaryKey ConceptsProblems and ApplicationsFINANCIAL INSTITUTIONSChapter 6Financial Markets and InstitutionsFinancial MarketsBroad functions of Financial MarketsTypes of Financial MarketsDebt verses Equity MarketsPhysical verses Financial Asset MarketsMoney verses Capital MarketsPrimary verses Secondary marketsPrivate verses Public MarketsOrganized exchanges verses over-the counter (OTC)Trading in Financial MarketsThe Equity Market Stock Exchanges Objectives of the ExchangeThe bond market The Derivative Market Role of Financial InstitutionsDepository Financial Institutions Savings and Loans Associations (S&Ls)Credit Unions Commercial BanksThe Commercial Banking Sector Non-depository Financial InstitutionsFinance CompaniesInsurance CompaniesTerm Life InsuranceWhole Life InsuranceUniversal Life InsuranceVariable Life InsuranceGroup Life InsuranceNonlife or Property and Casualty insuranceRegulation of Financial Markets and InstitutionsChapter SummaryKey ConceptsProblems and ApplicationsChapter 7Depository Institutions: The Business of Banking The Business of BankingStructure of the IndustryTypes of BanksFunctions of BanksAccepting Deposits Giving out LoansCollecting and settling payments of behalf of customersProviding safety depositsBuying and selling foreign currencyProviding international trade services: bills of exchangeBanks and the Creation of MoneyFractional Reserve Banking Chapter SummaryKey ConceptsProblems and ApplicationsChapter 8Managing Depository Institutions The Balance SheetLiabilities and Net WorthAssetsMaking ProfitsMinimizing the cost of acquiring fundsMaximizing revenueManaging riskLiquidity riskLiability and capital managementCapitalInterest rate risksDurationChapter SummaryKey ConceptsProblems and ApplicationsChapter 9Regulating Depository Institutions Why Regulate Banks Bank PanicsFinancial and economic stabilityTo protect depositorsTo prevent fraudulent activitiesTo control macroeconomic activityHow to Regulate BanksDeposit Insurance ScreeningInvestor Protection RegulationCredit Allocation RegulationProhibition of certain types of assets Capital Requirements The Basel Accords CAMELS RatingsCapitalAsset QualityManagementEarningsLiquiditySensitivity to market risks Chapter SummaryKey ConceptsProblems and ApplicationsMONEY CREATION, CONTROL & POLICYChapter 10Currency Boards and Central Banks Currency BoardsFunctions of Currency BoardsCosts and Benefits of Currency Boards Central BanksOwnership and Control of Central BanksFunctions of Central BanksConduct Monetary PolicyRegulate the Financial SystemLender of Last ResortGovernment’s BankerManage External ReservesOperate the Clearing MechanismIssue Domestic CurrencyOther FunctionsThe Balance Sheet of Central BanksThe Balance SheetChapter SummaryKey ConceptsProblems and ApplicationsChapter 11The Money Supply Process The Money SupplyThe Depository Institutions/Banks The Money Supply and the Actors in its CreationCreating MoneyDeriving the Formula for Money SupplyChapter SummaryKey ConceptsProblems and ApplicationsChapter 12Demand for MoneyDemand for Money, What does it MeanTheories of Money DemandQuantity Theory of MoneyTransactions Demand for Money TheoriesInventory Theoretic ModelMilton Friedman’s ModelEmpirical Estimation of Money DemandMONETARY POLICYChapter 13The Goals and Tools of Monetary Policy Deploying the ToolsRequired Reserve Ratio (r)Open Market Operations and the Monetary Base MBDiscount RateComplicationsChapter SummaryKey ConceptsProblems and ApplicationsChapter 14Conducting Monetary Policy The EconomyThe Goods Market Consumer ExpenditureThe Demand for Goods and ServicesInvestment ExpenditureGovernment ExpenditureThe IS CurveThe LM CurveGeneral EquilibriumChapter SummaryKey ConceptsProblems and ApplicationsChapter 15Aggregate Demand and the Monetary Transmission Mechanism Deriving the Aggregate Demand CurveThe Aggregate Demand and Monetary PolicyMonetary Transmission MechanismInterest rate effectExchange rate effectAsset price effectCredit channel effectExpectations effectThe Transmission mechanism in developing countriesChapter 16Money, Inflation and Output Inflation DefinedCauses of InflationCost-Push and Demand Pull InflationRoot cause of inflation: Seigniorage and ExpectationsConsequences of InflationUnanticipated inflationAnticipated inflation Inflation and OutputChapter SummaryKey ConceptsProblems and ApplicationsChapter 17Foreign Exchange Market Functions of the Exchange MarketThe Market for foreign currencyThe nominal and real exchange ratesThe Real Exchange Rate: DeterminantsSavings and investmentNet ExportsPurchasing Power Parity (PPP)Monetary policy in an open economyChapter SummaryKey ConceptsProblems and ApplicationsISLAMIC BANKINGChapter 18Islamic Banking Principles of Islamic Banking System Sharia-compliancy and capital marketsOperation and Regulation of Islamic BankingIslamic Banking and the global financial crisis of 2007 - 2009Chapter SummaryKey ConceptsProblems and Applications