Chinese students in the U.

S
• Up till now, among the 73 students who registered
my class, 60, or about 82% of them are Chinese
students (rough estimate based on my guess of their
names).
• Very surprising to me.
• In the 2009/10 academic year, 127,628 students from
China were studying in the United States (up 29.9%
from the previous year). 31.3% of them are
undergraduate students.
• The U.S. continues to experience an upsurge in the
number of undergraduate students coming from China.
• Business and Management is the top major chosen by
international students.

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 Implications
• More opportunities for Chinese high
school graduates.
• International students pay out-of-
state tuition and make other
consumption (At least $30,000). Good
funding source for the university,
good for the U.S economy.
• Classroom learning dynamics.

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Chapter 1

Why Study Money,

Banking, and
Financial
Markets?

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 Why Study Money, Banking, and
Financial Markets
• To examine how financial markets such
as bond, stock and foreign exchange
markets work
• To examine how financial institutions
such as banks and insurance companies
work
• To examine the role of money in the
economy

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 Financial Markets

• Markets in which funds are

transferred from people who have an
excess of available funds to people
who have a shortage of funds
• Bond Market and Stock Market

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 The Bond Market and Interest
Rates
• A security (financial instrument) is a
claim on the issuer’s future income or
assets
• A bond is a debt security that
promises to make payments periodically
for a specified period of time
• An interest rate is the cost of
borrowing or the price paid for the
rental of funds

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 The Bonds Market
• Chapter 2:The role of bond markets in
the economy
• Chapter 4-6:
• What an interest rate is?
• How the common movement in interest
rates come about?
• Why the interest rates on different
bonds vary?

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 The Stock Market

• Common stock represents a share of

ownership in a corporation
• A share of stock is a claim on the
earnings and assets of the
corporation
• Chapter 7: Black Monday Crash of 1987
and the Tech Crash of 2000.

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 FIGURE 2 Stock Prices as Measured by
the Dow Jones Industrial Average,
1950–2008

Source: Dow Jones Indexes: [Link]

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 Financial Institutions and
Banking
• Financial Intermediaries:
institutions that borrow funds from
people who have saved and make loans
to other people.
– Banks: accept deposits and make loans
– Other Financial Institutions: insurance
companies, finance companies, pension
funds, mutual funds and investment banks

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 Financial Institutions and
Banking
• Chapter 8
• Why are financial intermediaries so
crucial to well-functioning financial
markets?
• Why are they the most heavily regulated
businesses in the economy?
• The Enron Case
• Chapter 10: Banks
• How a capital crunch caused a credit
crunch in 2008?
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 Financial Institutions and
Banking
• Chapter 11: Financial regulation.
• The subprime mortgage crisis and the
consumer protection regulation.
• Chapter 12: Structure of Banking industry.
• Is bank consolidation a good thing?
• Chapter 13: A close look at the nonbanking
industry. The AIG Blow up
• Chapter 14: Is the Financial derivatives
the mass destructive weapons in the wall
street?
• Chapter 15: Role of Credit-Rating agencies?
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 Central Banking
• Chapter 16: How does the Federal
Reserve Bank work? Bernanke Vs
Greenspan
• Chapter 17: How is money created and
supplied?
• Chapter 18: Making sense of the tools
of the Monetary policy.
• Chapter 19: What should central bank
do in face of bubbles?

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 The Foreign Exchange Market

• The foreign exchange market is where

funds are converted from one currency
into another
• The foreign exchange rate is the
price of one currency in terms of
another currency
• The foreign exchange market
determines the foreign exchange rate

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 International Finance

• Financial markets have become

increasingly integrated throughout the
world.
• The international financial system has
tremendous impact on domestic
economies:
– How a country’s choice of exchange rate
policy affect its monetary policy?
– How capital controls impact domestic
financial systems and therefore the
performance of the economy?
– Which should be the role of international
financial institutions like the IMF?
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Chapter 3

What Is Money?

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 Measuring Money

• How do we measure money? Which

particular assets can be called
“money”?
• Construct monetary aggregates using
the concept of liquidity:
• M1 (most liquid assets) = currency +
traveler’s checks + demand deposits +
other checkable deposits.

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 Measuring Money

• M2 (adds to M1 other assets that are

not so liquid) = M1 + small
denomination time deposits + savings
deposits and money market deposit
accounts + money market mutual fund
shares.

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 Table 1 Measures of the
Monetary Aggregates

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 Monetary Aggregates

M1 (4)
M2 (4+3)

Currency
Small Den. Dep.
Traveler’s
Savings and MM
Checks
Money Market
Demand
Mutual Funds
Deposits
Shares
Other Check.
Dep

M3 (4+3+4)
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