Money and

Banking

Lecture 01

Text and Reference Material

The Primary textbook for the course will be
Money, Banking and Financial Markets by
Stephan G. Cecchetti
International Edition, McGraw Hill Publishers, ISBN 0-07-111565-X

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Text and Reference Material

Reference books will be
The Economics of Money, Banking and
Financial Markets, by Fredrick S. Mishkin
7th Edition Addison Wesley Longman Publishers

Principles of Money, Banking and Financial

Markets by Lawrence S. Ritter, Willaim L. Silber
and Gregory F. Udell,
Addison Wesley Longman Publishers

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Course Contents
Money and the Financial System
Money and the Payments System
Financial Instruments, Financial Markets, and
Financial Institutions

Interest rate, Financial instruments and financial

markets

Future Value, Present Value and Interest Rates

Understanding Risk
Bonds, Pricing and Determination of Interest Rates
The Risk and Term Structure of Interest Rates
Stocks, Stock Markets and Market Efficiency
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Course Contents
Financial Institutions

Economics of Financial Intermediation

Depositary Institutions: Banks and bank Management
Financial Industry Structure
Regulating the financial system

Central Banks, Monetary Policy and Financial

stability

Structure of central banks

Balance sheet and Money Supply process
Monetary policy
Exchange rate policy
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Course Contents
Modern Monetary Economics

Money growth and Money Demand

Aggregate demand
Business Cycle
Output and inflation in the short run

Money and Banking in Islam

Monetary and financial policy and structure for an
Interest-free economy
Islamic Banking in the contemporary world

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Five Parts of the Financial System

1.
2.
3.
4.
5.

Money
Financial Instruments
Financial Markets
Financial Institutions
Central Banks

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Five Parts of the Financial System

1. Money

To pay for purchases

To store wealth

Evolved from gold and silver coins to paper

money to todays electronic funds transfers
Traditional Paycheck system vs. ATM
Withdrawals
Mailed transactions vs. E-banking

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Five Parts of the Financial System

2.

Financial Instruments
To transfer wealth from savers to borrowers
To transfer risk to those best equipped to bear it.

once investing was an activity reserved for the

wealthy
Costly individual stock transactions through
stockbrokers
Information collection was not so easy

Now, small investors have the opportunity to

purchase shares in mutual funds.
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Five Parts of the Financial System

3.

Financial Markets
To buy and sell financial instruments quickly and
cheaply

evolved from coffeehouses to trading places

(Stock exchanges) to electronic networks.
Transactions are much more cheaper now
Markets offer a broader array of financial
instruments than were available even 50 years
ago

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Five Parts of the Financial System

4.Financial Institutions.
Provide access to financial markets

Banks evolved from Vaults and developed into

deposits- and loans-agency
Todays banks are more like financial
supermarkets offering a huge assortment of
financial products and services for sale.

Access to financial markets

Insurance
Home- and car-loans
Consumer credit
Investment advice
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Five Parts of the Financial System

5.

Central Banks

Monitors financial Institutions

stabilizes the Economy

Initiated by Monarchs to finance the wars

The govt. treasuries have evolved into the
modern central bank
control the availability of money and credit in
such a way as to ensure
1. low inflation,
2. high growth, and
3. the stability of the financial system.

State Bank of Pakistan www.sbp.org.pk

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Summary

Five Parts of the Financial System

Money
Financial Instruments
Financial Markets
Financial Institutions
Central Banks

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Upcoming Topics
Five Core Principles of Money and Banking

Time has Value

Risk Requires Compensation
Information is the basis for decisions
Markets set prices and allocate resources
Stability improves welfare

Financial System Promotes Economic Efficiency

Facilitate Payments
Channel Funds From Savers to Borrowers
Enable Risk Sharing
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Upcoming Topics
Money
Characteristics of Money
Liquidity

Payment system
Commodity vs. Fiat Money
Cheques
Other forms of payments

Future of Money
Measuring Money
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