Financial Markets and the Special Case of Money
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Transcript of Financial Markets and the Special Case of Money
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Financial Markets and the Special Case of Money
FAIZAN ARIFMBAEV/1-10/016
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PLAN OF PRESENTATION The Modern Financial System
The Special Case Of Money
Banking And The Supply Of Money
The Stock Market
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“The Modern Financial System”
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The Role of the Financial System
Financial Markets
Financial Intermediaries
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The Functions Of The Financial System
Transfers Resources
Manages Risks
Pools and Subdivides Funds
Clearinghouse Function
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The Flow of Funds
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A Menu Of Financial Assets
Money Saving Accounts Government Securities Equities Pension Funds
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Interest Rates and the return on Financial Assets
Loan
Liquid Assets
Illiquid Assets
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Real Interest Rates
Nominal Interest Rates
VS
Versus
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“THE SPECIAL CASE OF MONEY”
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The History of Money
Barter System
Commodity Money
Modern Money
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Components Of The Money Supply
Narrow (Transaction) Money (M1)
Broad Money (M2)
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Function of Money
Medium of Exchange
Unit of Accounts (measurable)
Store Of Value
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“BANKING AND THE SUPPLY OF MONEY”
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BANKING AND THE SUPPLY OF MONEY
How Banks Developed from Goldsmith Establishments
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Assets Liabilities
Reserves $ 1,000,000.00 Demand Deposits $ 1,000,000.00
Total $ 1,000,000.00 Total $ 1,000,000.00
Goldsmith Balance Sheet
* Bank Held 100% Cash Reserves against Demand
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How Deposits Are Created:First-Generation Banks
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First-Generation Bank Balance Sheet
Bank 1 Initial Position
Assets Liabilities
Reserves $ 1,000.00 Demand Deposits $ 1,000.00
Total $ 1,000.00 Total $ 1,000.00
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First-Generation Bank Balance Sheet
Bank 1 Final Position
Assets Liabilities
Reserves $ 100.00 Deposits $ 1,000.00
Loans & Investments $ 900.00
Total $ 1,000.00 Total $ 1,000.00
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Second-Generation Banks
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Second -Generation Bank Balance Sheet
Bank 2 Initial Position
Assets Liabilities
Reserves $ 900.00 Demand Deposits $ 900.00
Total $ 900.00 Total $ 900.00
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Second-Generation Bank Balance Sheet
Bank 2 Final Position
Assets Liabilities
Reserves $ 90.00 Deposits $ 900.00
Loans & Investments $ 810.00
Total $ 900.00 Total $ 900.00
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FINAL SYSTEM EQUILIBRIUMPosition of Bank New Deposits
New Loans and Investments
New Reserves
Original Banks $ 1,000.00 $ 900.00 $ 100.00
2ndGeneration banks $ 900.00 $ 810.00 $ 90.00
3rdGeneration banks $ 810.00 $ 729.00 $ 81.00
4thGeneration banks $ 729.00 $ 656.10 $ 72.90
5thGeneration banks $ 656.10 $ 590.49 $ 65.61
6thGeneration banks $ 590.49 $ 531.44 $ 59.05
7thGeneration banks $ 531.44 $ 478.30 $ 53.14
8thGeneration banks $ 478.30 $ 430.47 $ 47.83
9thGeneration banks $ 430.47 $ 387.42 $ 43.05
10thGeneration banks $ 387.42 $ 348.68 $ 38.74
Sum of 1st 10 generation of banks $ 6,513.22 $ 5,861.89 $ 651.32
: : : :
Remaining banks 3,486.78 3,138.11 348.68
Total for banking system as a whole 10,000.00 9,000.00 1,000.00
* Multiple expansion of banks deposits
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“THE STOCK MARKET”
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Bubbles And Crashes
Firm Foundations
Psychology
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Efficient Market and the Random Walk
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Thank You!
Presenter: Mr. Faizan Arif | Source: Economics by Samuelson 18th Edition | Venue: Dadabhoy Institute of Higher Education | Software: Microsoft Power Point | Topic: Financial Markets and the Special Case of Money | Concept & Design: Faizan Arif