Video assignment

Unit 4 April 4

• Loadable Fund Market
• is and interest rate of 50% good or bad?
• Bad for borrowers but good for lenders
• Loadable funds market is the private sector supply and demand for loans 
• This market brings together those who want to borrow 
• this market shows the effect on real interest rate 
• Demand- Inverse relationship between real interest and quantity loans supplied 
• this is not the same as the money market 

Unit 4 April 3

• Tools of Monetary policy and 3 sifters of money supply 
• reserve requirement 
• open market operation
• discount rate 
• Reserve requirement- the dollar amount that must be kept back 
• the FED sets the amount that banks must hold 
• if there is a recession the FED has to decrease the reserve ratio
• if there is an inflation the FED has to increase the reserve ratio
• Open Market Operation- when the FED buys or sells government bonds 
• this is the most important and widely used monetary policy 
• if the fed buys bonds-it takes bonds out of the economy and replaces them with money.
• if the fed sells- bond it takes money and gives the securities to investors 
• Discount rate- the interest rate that the fed changes commercial banks for short term loans
• Federal Funds Rate- The interest rate that banks charge one another for overnight loans 
• prime rate- the interest rate that banks charge their most credit worthy customers 

Unit 4 March 27

• Money Creation Formula
• A single Bank can create money by the amount of its excess reserves 
• the banking system as a whole can create money by a multiple of the excess reserves 
• MM x ER = Expansion of Money 
• Money Multiplier = 1/RR
• New vs. Existing money 
• if the initial deposit in a bank comes from the FED or bank purchase of a bond or other money out of circulation, the deposit immediately increases the money supply 
• the deposit then leads to further expansion of the money supply through the money creation process 
• total change in MS if initial deposit is new money= deposit + money created by banking system
• if a deposit in a bank is existing money, depositing the amount does not change the MS immediately because it is already counted 
• existing currency deposited into a checking account changes only the composition of the money supply from coin/paper money to checking account deposit
• total change in MS if deposits is existing money = banking system created money only

Unit 4 March 22

Bond vs. Stocks

• Bonds are loans or IOU's that represent debt that the government or a corporation must repay back to an investor 
• if a corporation issues and then sells a bond, its a liability, for the buyer its an asset
• if nominal interest rate decreases the value of a bond will increase 
• if the nominal interest rate increases, value of a bond decreases 
• stock owners can earn a profit in two ways 
• dividends, which are portions of a corporation's profit, are paid out to stockholders
• a capital gain is earned when a stockholder sells stock for more than he/she paid for it 
• a stockholder that sells stock at a lower price than the purchase price suffers a capital loss
• Money Market
• Demand for money has an inverse relationship between nominal interest rates and the quantity of money demand 
• when quantity demand decrease when interest rates increase 
• quantity demand increases when interest rate decrease
• money demand sifters
• change in price level 
• change in income 
• change in taxation that affects investment 
• How do banks make money 
• Fractional reserve 
• demand deposits are created through the fractional reserve system
• the process in which banks hold a small portion of their deposits in their reserve and they loan out excess 
• banks keep cash on hand ( Required Reserve ) to meet depositors needs
• banks must keep reserve deposit in the vault or at their district fed
• total reserve is equal to 
• required reserves plus excess reserves 
• banks can only lend out their excess reserves

Unit 4 March 20

• The Barter System- Goods and services are traded directly. There is no money exchanged
• Money- anything that is generally accepted in payment for goods and services 
• not the same as wealth or income 
• wealth- the total collection of assets that store value 
• Income- a flow of earnings per unit or time 
• 3 things money can be used as
• Medium of  Exchange 
• determines value 
• Unit of account 
• Comparing cost of price
• Store of Value
• how well does me money hold
• 3 types of money
• Representative
• Represents something of value
• IOU's
• Commodity
• It has value within itself
• salt gold
• Fiat
• It is money because the government says so
• paper money, coins
• Characteristic of money 
• Durability- money is durable
• Probability- you can carry it any where
• Uniformity
• Divisibility- able to be divided
• Limited supply 
• Acceptability
• liquidity- easy to convert to cash
• 3 types of money 
• M1( high liquidity )- Coins, Currency, and Checkable deposits 
• M2 ( Medium liquidity )- M1 plus savings deposits, time deposits, and mutual funds below $100K
• M3( Low liquidity )- M2 plus time deposits above $100K

Unit 4 March 21

Purpose of financial Institution

• Store money
• save money
• through savings accounts 
• checking accounts 
• certificate of deposits 
• money market amount 
• loan money 
• interest ( How banks make money )- price paid for the use borrowed money 
• Principal the amount you borrow 

Types of financial Intermediates

• Commercial Bank 
• Savings and loss Institution
• Credit Unions 
• Mutual Fund Companies
• Finance Companies
• assets- anything of monetary value owned by a person or business 
• Financial assets- a paper claim that entitles the buyer to future income from the seller  
• Physical Assets- a claim on a tangible object 
• Liability- a requirement to pay in the future ( Usually with interest )
• there 5 major financial assets: loans stack, bonds, loans backed securities, and banks deposits 
• the time value of money- a dollar is worth more today than it is tomorrow. you are losing money every second you are not investing it 
• present value vs. future value
• FV= future value, PV= Present Value, i= Nominal interest rate, t=time 
• future value- if you invest money to someone, it will compound according to the following equation: FV=PV(1+i)^t
• Present Value- the amount of money i need to invest now, in order to get some amount (FV is known) in future. PV=(FV/1+i)^n
• Simple Interest Formula
• V=(1+r)^n*P
• Compound Interest Formula
• V= (1+r/k)^nk*P