Chapter 1An Introduction toMoneyandtheFinancialSystemMcGraw-Hilly/rwinCopyright 2006byTheMcGraw-Hill Companies,Inc.All rights reserved
McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 1 An Introduction to Money and the Financial System
CONTENS81.1Whytostudymoney,bankand financial system?1.2 Fivepartsof thefinancial system1.3Fivecoreprinciplesof thefinancialsystem1-2
1-2 CONTENS •1.1 Why to study money, bank and financial system? 1.2 Five parts of the financial system 1.3 Five core principles of the financial system
bank$ 1.1 Why to study money,Oand financial system1.Why Study Financial Markets?Channel funds from savers to investorsthereby promoting economic efficiencyAffect personal wealth and behavior ofbusinessfirms1-3
1-3 1. Why Study Financial Markets? • Channel funds from savers to investors, thereby promoting economic efficiency • Affect personal wealth and behavior of business firms §1.1 Why to study money, bank and financial system
Why to studyO2. Why Study Banking and FinancialInstitutions?Financial IntermediationHelps get funds from savers to investorsBanksandMoneySupplyCrucial role in creation of moneyFinancial Innovation
1-4 Why to study 2. Why Study Banking and Financial Institutions? • Financial Intermediation • Helps get funds from savers to investors • Banks and Money Supply • Crucial role in creation of money • Financial Innovation
Why to study?a3. Why Study Money and Monetary Policy?Influence on business cycles, inflation, andinterest rates1-5
1-5 Why to study 3. Why Study Money and Monetary Policy? • Influence on business cycles, inflation, and interest rates
福Bond MarketCInterestRate (%)Three-monthTreasuryBills25ScotiaMcLeodLong-termCorporateBondsCanadianGovernmentLong-termBonds201510826Source Statistics Canada CANSIM II Series V122531,V12254f,and V122518.1-6
1-6 Bond Market
StockMarketOS&P/TSXCompositeIndex1200010000800060004000200010638960868ToeSource Sutistics Canadu CANSIMSeries V1226201-7
1-7 Stock Market
Foreign Exchange MarketUs s/CanadiansExchangeRate1.11.00.90.80.70.6SourceStatistics Canada CANSIMIISeries V374261-8
1-8 Foreign Exchange Market
MoneyandBusinessCyclesPNewGrowthFate (%)2520510Source From1914 to1967 the M2series is from Cherie Metcalf, Angela Redish,and Ronuld Sheirer,NewEstinsatesoftheCanadianMoncyStock:1871-1967CanadiantJournalofEconomics31,no,(February1998)104-24.Reprinted with permission of BlackwellPublishers,From1968 to2002 itisStatistiesCanaduCANSIMllSeriesBHiRandB3ioo1-9
1-9 Money and Business Cycles
Money and the Price LevelC130120MoneySupply (M2)110AggregatePriceLevel (GDPDeflator)100908070605040302010068668616669661B612811661166Sounce Statisics Gamada CANSIM 1f Series V37128and V3800361-10
1-10 Money and the Price Level