eco 212 money & banking fall 2008 course information course policies course information course...
TRANSCRIPT
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Eco 212 Eco 212 Money & BankingMoney & BankingFall 2008Fall 2008
Eco 212 Eco 212 Money & BankingMoney & BankingFall 2008Fall 2008
• Course information
• Course policies• Course information
• Course policies
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Who am I?Who am I?Who am I?Who am I?
• Dr. Anwar Al-Shriaan
• Office hours: MW 12:30-1:30, and by appt.
• Dr. Anwar Al-Shriaan
• Office hours: MW 12:30-1:30, and by appt.
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About this courseAbout this courseAbout this courseAbout this course• Intro
• Financial markets Interest rates, exchange rates, stock
market, derivatives
• Financial institutions structure, regulation
• Federal Reserve System & monetary policy
• Role of money in the economy
• Intro
• Financial markets Interest rates, exchange rates, stock
market, derivatives
• Financial institutions structure, regulation
• Federal Reserve System & monetary policy
• Role of money in the economy
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Course materialsCourse materialsCourse materialsCourse materials
• required: textbook Mishkin, Frederic S., "The
Economics of Money, Banking, and Financial Markets." Sixth edition, Addison Wesley (2001).
in bookstores
• required: textbook Mishkin, Frederic S., "The
Economics of Money, Banking, and Financial Markets." Sixth edition, Addison Wesley (2001).
in bookstores
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• recommended: course web site• It’s free!• Address on syllabus
course email list Email me with ur name and ur class
time
• recommended: course web site• It’s free!• Address on syllabus
course email list Email me with ur name and ur class
time
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GradingGradingGradingGrading
• Point Structure:
• Class Participation & Attendance 10 points
• Homework and Quizzes 10 points
• Exam 1 20 points
• Exam 2 20 points
• Final Exam 40 points
• Point Structure:
• Class Participation & Attendance 10 points
• Homework and Quizzes 10 points
• Exam 1 20 points
• Exam 2 20 points
• Final Exam 40 points
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• grading scale in syllabus
• extra credit About 10 pts. during the semester must be present in class when
assigned
• attendance is graded and important to earn extra credits,
• grading scale in syllabus
• extra credit About 10 pts. during the semester must be present in class when
assigned
• attendance is graded and important to earn extra credits,
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MakeupsMakeupsMakeupsMakeups
• one week’s notice (except emergencies)
• require documented excused absence
• may be essay exams or I may reweight the other exams
• one week’s notice (except emergencies)
• require documented excused absence
• may be essay exams or I may reweight the other exams
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AttendanceAttendanceAttendanceAttendance
• explicitly graded
• I expect regular attendance & punctuality homework due at beginning of class
• you are responsible for information in class
• extra credit only available to those in attendance when it is offered
• explicitly graded
• I expect regular attendance & punctuality homework due at beginning of class
• you are responsible for information in class
• extra credit only available to those in attendance when it is offered
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CheatingCheatingCheatingCheating
• cheating on an exam means a failing grade in the course
• copied or very identical homework will receive a zero
• cheating on an exam means a failing grade in the course
• copied or very identical homework will receive a zero
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Having problems in the course?Having problems in the course?Having problems in the course?Having problems in the course?
• see me sooner, not later!• see me sooner, not later!
Need accomodation?Need accomodation?Need accomodation?Need accomodation?
• see me after class or in my office• see me after class or in my office
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Chapter 1: Intro to Money & the Chapter 1: Intro to Money & the Financial SystemFinancial SystemChapter 1: Intro to Money & the Chapter 1: Intro to Money & the Financial SystemFinancial System
• 5 Core Principles of Money & Banking Time has value Risk requires compensation Information is the basis for decisions Markets set prices and allocate
resources Stability improves welfare
• 5 Core Principles of Money & Banking Time has value Risk requires compensation Information is the basis for decisions Markets set prices and allocate
resources Stability improves welfare
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in the news…in the news…in the news…in the news…• Subprime lending market meltdown
impact on mortgage markets Impact on financial institutions impact on the stock market impact on the economy
• Subprime lending market meltdown impact on mortgage markets Impact on financial institutions impact on the stock market impact on the economy
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• The U.S. dollar parity with the Canadian $! Revaluation of the Chinese yuan?
• Federal Reserve Chair Ben Bernanke Reduction of federal funds rate• Largest since 1984
A re-emergence of stagflation?
• The U.S. dollar parity with the Canadian $! Revaluation of the Chinese yuan?
• Federal Reserve Chair Ben Bernanke Reduction of federal funds rate• Largest since 1984
A re-emergence of stagflation?
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1. Time has value1. Time has value1. Time has value1. Time has value
• $100 today vs. $100 in one year Are you indifferent?
• Forensic economics
• Value of a financial instrument depends on SIZE and TIMING of payments
• $100 today vs. $100 in one year Are you indifferent?
• Forensic economics
• Value of a financial instrument depends on SIZE and TIMING of payments
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Example: HGTVExample: HGTVExample: HGTVExample: HGTV
• My House is Worth What? House purchased 2001: $225,000 Renovations over 5 years: $41,000 Estimated current value: $350,000 Profit: $84,000…..Really?• NO! not really!
• My House is Worth What? House purchased 2001: $225,000 Renovations over 5 years: $41,000 Estimated current value: $350,000 Profit: $84,000…..Really?• NO! not really!
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2. Risk requires compensation2. Risk requires compensation2. Risk requires compensation2. Risk requires compensation
• Risk comes from uncertainty
• Risk is unavoidable
• We don’t like it.
• Risk comes from uncertainty
• Risk is unavoidable
• We don’t like it.
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• To take on risk, we demand compensation Subprime mortgage rates > prime
mortgage rates
• We pay to avoid certain risks Auto, life insurance Low rates on checking, savings
accounts
• To take on risk, we demand compensation Subprime mortgage rates > prime
mortgage rates
• We pay to avoid certain risks Auto, life insurance Low rates on checking, savings
accounts
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• The value of a financial asset depends on the size, timing, and CERTAINTY
of its payments.
• The value of a financial asset depends on the size, timing, and CERTAINTY
of its payments.
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3. Information is the basis for 3. Information is the basis for decisionsdecisions3. Information is the basis for 3. Information is the basis for decisionsdecisions
• Rational decisions use all available info
• Asymmetric info can impede markets
• Financial institutions play a big role in gathering info
• Financial regulation demands disclosure of certain info
• Rational decisions use all available info
• Asymmetric info can impede markets
• Financial institutions play a big role in gathering info
• Financial regulation demands disclosure of certain info
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4. Markets set prices and allocate 4. Markets set prices and allocate resourcesresources4. Markets set prices and allocate 4. Markets set prices and allocate resourcesresources
• Eco 110!
• Markets set a price that rations scarce resources Prices send a signal
• Financial market prices allocate funds
• Eco 110!
• Markets set a price that rations scarce resources Prices send a signal
• Financial market prices allocate funds
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5. Stability improves welfare5. Stability improves welfare5. Stability improves welfare5. Stability improves welfare
• Back to #2—we do not like uncertainty
• Financial stability feeds economic growth and standards of living Role of institutions, Federal
Reserve
• Back to #2—we do not like uncertainty
• Financial stability feeds economic growth and standards of living Role of institutions, Federal
Reserve