To anyone considering taking Money and Banking I highly recommend this class. As a student I have learned how the financial system, money, banks, and the Federal Reserve work. Each of these factors is an integral part in the world economy. To be able to understand why there are recessions, inflation, and deflation one must have an understanding of money supply, interest rates, investing, and the effects of government policy.
The first important thing I learned in Money and Banking is how the financial system works. Knowing how the financial system works is the basis and foundation for understanding banks and the financial market. Financial markets make money flow more freely by connecting those with surplus funds such as the government, businesses, and households with those who are spenders. For instance, someone who has an inheritance fund might wish to have their money earn interest. The financial market makes it possible for the individual with money to invest to find a suitable investment for their money quickly. An entrepreneur, who would be classified as a spender, is looking for cash to be invested towards their idea. The financial markets make it possible for the entrepreneur to find available funds for their business idea.
There are two types of financial markets: the primary and the secondary. A primary market is where a company would issue an IPO or an initial public offering. It is also where new bonds are issued. The buyers in the primary market are usually corporations or the government who has a large sum of cash to invest. The secondary market is where securities that have been previously sold can be resold. The public is more familiar with the secondary market, like the New York Stock Exchan...
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...economic meltdown will be the result. The banks that received bailout money have very large amounts of cash in reserve. Normally, banks lend their reserves to create additional wealth. The high amount of foreclosures and defaults on loans has kept the banks busy with their balance sheets and the amount of lending to businesses and the public is low. When the banks are no longer worried about their financial situation they will become aware of the large amounts of money in their reserves. This could cause another lending spree, inflation, and another economic catastrophe to occur. Having a basic understanding of how the financial system works, how a financial crisis happens, and the causes of inflation is important. Knowledge can help the average citizen protect themselves from their own financial disaster by being aware of what is going on in the economy.
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
What at first seemed to be an economic slump turned into a brutal crisis, and all eyes looked to the Government and Federal Reserve to help the economy. With the large amount of debt the economy faced the Federal Reserve stepped in and bailed out the banks in an attempt to smooth over the financial struggles of the economy. The banks that survived took precautionary measures, making it difficult for businesses and consumers to borrow (Love, 2011). Thus leading to businesses failing and less jobs being created. The large amount of debt had also taken its toll on the job market. Between 2007 and 2009 employment dropped by 8 million workers, causing the unemployment rate to go from 4.7 percent to 10 percent (McConnell, 2012).
Before financial crisis in 2008, speculators including investment banks in Wall Street securitized mortgages by using OBS (Off-balance-sheet Operation), and used CDS (Credit Default Swap) to hedge funds. Finally, financial risk exposed, which caused heavy loss to the whole economy in U.S. The key reason that it is harmful is not only that commercial banks engage in investment banks’ activities, it is because commercial banks, by engaging in securities organization, misappropriated credit funds and inter-bank borrowing(lending) business for their own investment, including in security market or real estate market. This would create a “bubble” economy and if the “bubble” is broken, the whole country’s economy will seriously suffer from it. To avoid that, the government has to stop it. So the government has to put taxpayers’ money to cover this big hole caused by speculators in Wall Street.
Something that almost every person in America has in their wallet is money, whether it be 20 dollars or a one dollar bill. We all use money every day to eat, survive, and get around. The money supply in America can effect a single person to a large firm like the Apple Corporation. In this paper I am going to discuss the purpose money, how the government has the chance to influence the amount of money in our economy, and the monetary policy affects the Apple Corporation.
We learned so much in course that applies to our everyday lives and the condition and operation of the country that I actually wish they had taught it back in high school. There was so much subject matter covered that it is difficult to narrow what I learned down to just three things. The textbook and supporting documentation and discussion pertained to the financial system. The financial system is basically how the money moves through our economy. Funds flow primarily through the financial markets which our book defines as; “Markets in which funds are transferred from people who have excess available funds to people who have shortage”. (Mishkin, 2010) The key is to keep the funds productively working in the economy. I will focus broadly and say that the three most important things I learned in this course were about money & financial system itself, the institutions that fuel the system and the Central Banks.
The course that I took this term on money and banking was of great value to me. It taught me some very important things. One of the most important things that I learned in this course was that the Federal Reserve is the best resource for information concerning the economy. Another important thing that I learned was that interest rates mean different things to different people. A third very important thing that I learned was how a financial crisis can start in the United States.
Economic uncertainty has caused exaggerated criticism of the Federal Reserve. Money and Banking has deepened my understanding of the Federal Reserve and has helped me challenge those criticisms. The U.S. standard of living would drop if people lost faith in the safety of financial institutions. Frederic Mishkin makes the point in the text, The Economics of Money Banking, and Financial Markets (2010) that “Banks and other financial institutions are what make financial markets work. Without them, financial markets would not be able to move funds from people who save to people who have productive investment opportunities.” (p.7). When people lose confidence in the economy this activity freezes or weakens, consequently, asset prices decline, unemployment rises and companies default as was the case of Lehman Brothers in 2008. Money and Banking has taught me that the Federal Reserve is the greatest safeguard to our banking system and therefore, the greatest protector of our wealth. The three most important things I’ve learned in Money and Banking are:
Money is of fundamental importance to the activity of the economy. Money plays an important role in the daily life of a person whether he or she is a consumer, a producer, a businessman, a student, or a politician. An individual need not be an economist to be aware that money plays an important role in economics; an individual need think only of his or her own experience. In a modern economy, money should be used solely as an international medium of exchange. However, with money comes difficulties; and with difficulties such as inequality and financial crises, government regulation is inevitable and preferable. Government regulation of money should expand economic growth, as well as reduce the corruption caused by the growth of money.
Public schools all over the world have different classes and have different ways of doing things but in my opinion i think all schools should have a banking class. Schools should make this class mandatory and they should have to take it to graduate. I kids took a banking class it would show them how to save their money and how to save. A banking class could show them how to be successful and resourceful as well because it would teach us how to invest our money. This class could also show us how to write checks, how to use credit/ debit cards and it show us how it would be like when we get older and have to go to the bank or fill out checks or use a signature card.the class could really get us ready for our future so we will know what to do
As we are moving to the end of the course, we want to present you with the Federal Reserve System (Fed), which is the central bank of the USA. We are going to explore the roles of Fed in regularizing the economy, its function, and also the tools used in doing that. We will learn how central banks regulate the banking system and how they manage money supply in economies. We will also be presented to the financial crises lessons we can be able to understand the importance of the regulatory system; and then, we answering questions such as:
Money supply is the availability of money in the hands of the public (economy) that can be used to purchase goods, services and securities. In macroeconomics, the price of money is equivalent to the rate of interest. There's an inverse relationship between money supply and interest rates. As money supply increases, interest will decrease. On the other hand, interest will increases as money supply decreases. It is very important to understand that the economy works at market equilibrium. There are several factors affecting money supply; and these contributing factors will be the main focus of this paper. Understanding the basic principle on money supply is imperative to have a good grasp on the macroeconomic impact of money supply on business operations.
The primary market is a financial market through which companies sell their new issues of shares through an initial public offering (IPO). An investment intermediary, such as an investment bank, will help to underwrite and manage the issuance for the first time. Subsequent trading of stock will then be processed at the secondary market (Mushkin & Eakins, 2012; Hubbard & O’Brien, 2014).
Capital markets are markets "where people, companies, and governments with more funds than they need (because they save some of their income) transfer those funds to people, companies, or governments who have a shortage of funds (because they spend more than their income)" (Woepking, ¶3). The two major capital markets are stock and bond markets. Capital markets promote economic efficiency by moving funds from those who do not have an immediate need for it to those who do. Individuals or companies will put money at risk if the return on the intended investment is greater than the return of holding risk-free assets. An example of this would be those that invest in real estate or purchase stocks and bonds. Those that invest want the stock, bond, or real estate to grow in value or appreciate. An example of this concept would be if an individual or company invested an amount saved over the course of a year. While investing may be riskier, these individuals hope that the investment will yield a greater return than leaving the money in a savings account drawing nominal interest. In this example the companies that issue the stocks or bonds have spending needs that exceed their income so the company will finance their spending needs by issuing securities in the capital markets. This is a method of direct finance because the "companies borrowed directly by issuing securities to investors in the capital markets" (Woepking, ¶5).
In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary and fiscal policy or giving bailout is needed in order to eliminate and control enormous effects of the financial crisis.
Several financial statements have been prepared to describe the causes of this current financial failure. There are a variety of factors that has resulted in the explosion of this financial crisis. Downfall of the US housing market; highly benefited financial dealings and a low interest-rate promoting borrowings, have all contributed to the recession monetary market. Let us now consider these various reasons in a little detail.