Money and the Financial System
1
, Introduction
• Financial system
– Channels resources from savers to investors
– Has become complicated over time
– Consequences (growth and recession)
• Monetary transmission mechanism
– The process by which monetary policy interacts
with banks and the rest of the economy
– Various actions undertaken by the central bank
– Impact on the economy
2
, The financial system
• The financial system: includes markets, firms, and other
institutions which carry out financial decisions of the
households, businesses, and the government
• The Financial system consists of different financial institutions
• Financial institutions can be grouped into two categories:
– Financial markets: are the financial institutions that link savers
directly to the borrowers
• Bond market
• Stock market
– Financial intermediaries: are the financial institutions through which
savers indirectly provide funds to borrowers
• Banks
• Mutual funds
3
1
, Introduction
• Financial system
– Channels resources from savers to investors
– Has become complicated over time
– Consequences (growth and recession)
• Monetary transmission mechanism
– The process by which monetary policy interacts
with banks and the rest of the economy
– Various actions undertaken by the central bank
– Impact on the economy
2
, The financial system
• The financial system: includes markets, firms, and other
institutions which carry out financial decisions of the
households, businesses, and the government
• The Financial system consists of different financial institutions
• Financial institutions can be grouped into two categories:
– Financial markets: are the financial institutions that link savers
directly to the borrowers
• Bond market
• Stock market
– Financial intermediaries: are the financial institutions through which
savers indirectly provide funds to borrowers
• Banks
• Mutual funds
3
