Epilogue

1
Epilogue

• What you should take away from this course.

2
Life of a Grad Student
3
Money and Banking

• Financial Markets
• Institutions
• Monetary Policy

4
Purpose of Financial Intermediaries

• Matching of Borrowers and Savers
• Risk sharing properties

5
Moving Funds Through the Financial System
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Key Services Provided by the Financial System
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Money and Monetary aggregates

• Moneys properties and purposes.
• Characteristics of money.
• Acceptable to most traders
• Standardized quality
• Durable
• Valuable relative to its weight
• Divisible
• Functions of money.
• Medium of Exchange
• Unit of Account.
• Store of value
• Measures of money.
• Narrow v. broad measures.

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Measuring Monetary Aggregates, February 2006
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Financial Markets Debt

• Interest Rates
• Characteristics of debt securities.
• Term structure of interest rates.
• Supply and Demand in bond markets.

10
Coupon Bonds
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Equilibrium in Markets for Bonds and Loanable
Funds
12
Determining Default Risk Premium in Yields
13
(No Transcript)
14
Financial Markets Equity

• Stock Markets
• Dividend discount models.
• Risk structure of equities.
• Risk aversion and portfolio decisions.
• Importance of Information and efficient markets.

15
Gordon Growth Model
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Flow of Information in an Efficient Financial
Market
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Democratic Nominee Market
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Iowa Republican Nomination
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Iowa Pres08 WTA
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Financial Markets Derivatives

• Derivatives Markets
• Futures Markets.
• Options and options markets.
• Hedging and speculation purposes of Derivatives.

21
Options
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Financial institutions

• Moral Hazard and Adverse selection problems in
  the financial sector.
• Bank balance sheets and the money transfer
  process.
• Economic and Legal aspects of the banking sector.

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Balance Sheet of U.S. Commercial Banks, 2006
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Interest-Rate Risk

• If a bank has more rate-sensitive liabilities
  than assets, a rise in interest rates will reduce
  bank profits and a decline in interest rates will
  raise bank profits

25
Central Banking

• Structure of the FED.
• Deposit creation and money supply
• Simple money multiplier
• M1 money multiplier
• Tools available to the Central Bank
• Open Market Operations
• Discount Policy
• Required Reserves
• Goals and Strategy of central banks.
• Price Stability v. High Employment
• Economic Growth and market stability

26
Federal Reserve Districts and Banks
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Organization and Authority of the Federal Reserve
System (contd)
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The Money Supply Process
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Deriving the Money Multiplier IV
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Equilibrium in the Federal Funds Market
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Achieving Monetary Policy Goals
32
Taylor rule in practice
33
Thanks

• Thanks for a great semester!
• Best of luck in the future!