Gide To Indiv Work-2

FINANCIAL MARKETS AND ISTITUTIONS by Peter Howells and Keith Bain,
Financial Times Prentice Hall, Pearson Educational Limited, 2000 ISBN 0-201-61906-7-X
A guide to individual work of students
PETER HOWELLS is a professor of Economics at the University of East

London, specialising in monetary and financial economics.
KEITH BAIN is Principal Lecturer also at the University of East London
and specialises in monetary economics and macroeconomic policy.
The principle objective of this book is to help students make sense of the
financial activity which, these days, is so prominently reported in the media.
Making sense of anything requires some grasp of theory and principles.
Theory is covered where absolutely necessary and a practical, applied
approach is taken throughout, to help students understand events as they
happen in the real world.
Visit the Financial Markets and Institutions companion Web site at

www.booksites.net/howells to find valuable learning material
For Students:
Study material designed to help you improve your results
Short answers and multiple choice questions will help you consolidate
learning
Links to further resources on the internet
Chapter updates that take topics further and keep you up to date
GENERAL DIRECTIONS
uRead and study the chapter selected;
uAnalyse the main concepts and principles;
uWrite a summary of the chapter selected, emphasising the main points and ideas
uCompile a vocabulary of 100 words, special terms and expressions used in this
chapter;
uAnswer the questions given below each chapter.
uThink and write down an assignment or few assignments (with key answers)
based on the material given and analysed in a chapter selected
uWrite a summary of the chapter that have read and analysed.
uYour summary should cover at least 20 pages including the special vocabulary
compiled and assignments presented with key answers.
uA computer version of this work must be presented together with a compiled

vocabulary (glossary) attached to it. The volume of this work should be about 20
printed pages.
TOPICS SUGGESTED according to the chapters given in the book
Compiled by senior teacher V. Burbene 1. VIKO, Faculty of Economics, 2004

1. THE FINANCIAL SYSTEM p. 2-26

2. THE FINANCIAL SYSTEM AND THE REAL ECONOMY p. 46-62
3. DEPOSIT TAKING INSTITUTIONS p. 65-101
4. NON-DEPOSIT-TAKING INSTITUTIONS p. 108-134
5. THE MONEY MARKETS p. 137-166
6. THE CAPITAL MARKETS p. 169-218
7. INTEREST RATES p. 221-251
8. FOREIGN EXCHANGE MARKETS p. 254-281
9. EXCHANGE RATES RISK, DERIVATIVES MARKETS AND
SPECULATION p. 285-309
10.INTERNATIONAL CAPITAL MARKETS p. 312-330
11.GOVERNMENT BORROWING AND FINANCIAL MARKETS p. 333-353
12.THE REGULATION OF FINANCIAL MARKETS p. 357-389
THE PLAN THAT MUST BE FOLLOWED WHEN WRITING THE TOPIC SELECTED
1. THE FINANCIAL SYSTEM p. 2-26
1.1 FINANCIAL INSTITUTIONS

1.2 FINANCIAL INSTITUTIONS AS FIRMS
1.3 FINANCIAL INSTITUTIONS AS INTERMEDIARIES
1.4 THE CREATION OF ASSETS ANDLIABILITIES
1.5 PORTFOLIO EQUILIBRIUM
1.2. FINANCIAL MARKETS

1.3. TYPES OF PRODUCTS
1.4. THE SUPPLY OF FINANCIAL INSTRUMENTS
1.5. THE DEMAND FOR FINANCIAL INSTRUMENTS
1.6. STOCKS AND FLOWS IN FINANCIAL MARKETS
1.3. LENDERS AND BORROWERS

1.3.1 SAVING AND LENDING
1.3.2 BORROWING
1.3.3 LENDING, BORROWING AND WEALTH
You will learn in this chapter:

· what are the components of a financial system
· what a financial system does
· the key features of financial intermediaries
· the key features of financial markets
· who the users of the system are, and the benefits they receive
If you’d like, you may learn more about portfolio theory
· how to find the present value of a fixed sum of money due for payment at a future date
· how to find the present value of a future stream of payments
· how to make allowance for risk in the valuing of these payments
· how to calculate a price for risky and risk-free assets
While reading this chapter, find the answers to the following questions
or perform the given assignments given below:

1. List the functions of a financial system.

2. Distinguish between deficit and surplus units
3. Distinguish between ‘saving’ and a ‘financial surplus’.
4. List and discuss the advantages to deficit and surplus units of using organised
financial markets and financial intermediaries.
5. How are financial intermediaries able to engage in maturity transformation?
6. Explain briefly the difference between deposit-taking and non-deposit-taking
intermediaries. Give two examples of each.
7. Why do people simultaneously hold financial assets and liabilities?
8. Suggest a suitable asset for someone who wished to avoid the following types
of risk at all cost:
9. capital risk; b) income risk.
2. THE FINANCIAL SYSTEM AND THE REAL ECONOMY p. 46-62
2.1 LENDING, BORROWING AND NATIONAL INCOME
2.2 FINANCIAL ACTIVITY AND THE LEVEL OF AGGREGATE DEMAND

2.2.1 MONEY AND SPENDING
2.2.2 LIQUID ASSETS AND SPENDING
2.2.3 FINANCIAL WEALTH AND SPENDING
2.3 THE COMPOSITION OF AGGREGATE DEMAND
2.4 THE FINANCIAL SYSTEM AND RESOURCE ALLOCATION

· how financial surpluses and deficits arise out of real economic activity
· how a financial surplus affects the stock of wealth
· how developments in the financial system may affect the level of aggregate
demand
· how developments in the financial system may affect the composition of aggregate
demand
· how developments in the financial system may affect the allocation of resources
1. Distinguish between ‘saving’, ‘lending’ and ‘financial surplus’.

2. A financial surplus must result in the net acquisition of financial assets.
Assume that you are in normal employment and that you regularly run a
financial surplus. Assume further that you make no conscious decision to buy
financial assets. What financial assets will you inevitably acquire?
3. If your income and capital account showed that you had made a ‘negative net
acquisition of financial assets’, what would this mean in practice?
4. Outline three ways in which the behaviour of the financial system could affect the
level of aggregate demand in the economy.
5. Suppose that prices in the US stock market suffer a major collapse. What effect
would you expect this to have upon the rest of the US economy and the
economies of other developed countries?

6. Why does a company’s share price matter in a take-over battle? If you were the
financial director of a predator firm what would you want to happen to your
firm’s share price? Might you be able to influence it in any way?
7. Why might financial system fail to allocate resources to their most desirable use?
3. DEPOSIT TAKING INSTITUTIONS p. 65-101
3.1 THE BANK OF ENGLAND
3.1.1 THE CONDUCT OF MONETARY POLICY

3.1.2 BANKER TO THE COMMERCIAL BANKING SYSTEM
3.1.3 BANKER TO THE GOVERNMENT
3.1.4 SUPERVISIOR OF THE BANKING SYSTEM
3.1.5 MANAGEMENT OF THE NATIONAL DEBT
3.1.6 MANAGER OF THE FOREIGN EXCHANGE RESRVES
3.1.7 CURRENCY ISSUE
3.2 BANKS
3.3 BANKS AND THE CREATION OF MONEY

3.3.1 WHY BANKS CREATE MONEY
3.3.2 HOW BANKS CREATE MONEY
3.4 CONSTRAINTS ON BANK LENDING

3.4.1 THE DEMAND FOR BANK LENDING
3.4.2 THE DEMAND FOR MONEY
3.4.3 THE MONETARY BASE
3.5 BUILDING SOCIETIES
3.6 LIABILITY MANAGEMENT

· the functions of a Central Bank
· the functions of different types of commercial bank
· how banking activity can affect the quantity of money in the economy
· the functions of building societies
· how competition between deposit-taking institutions has led to the practice of
‘liability management’ and how this has made the conduct of monetary policy
more difficult.
1. Distinguish between deposit-taking and non-deposit-taking institutions. Explain

the difference between ‘discretionary’ and contractual’ saving.
2. Explain what is meant by the ‘M4 private sector’. What is the relevance of this
concept to the definition of ‘broad money’?
3. Distinguish between M0 and M4.
4. Why might conflicts arise between some functions of the central bank?
5. Distinguish between ‘mandatory’ and ‘prudential’ reserve ratios. Using a
simplified balance sheet, show how

a) the stock of money and b) the reserve ratio of the commercial bank
system
are affected by an expansion of bank loan.
6. Explain what is meant by ‘lender of last resort’ and show how this role enables the
central bank to influence the level of short-term interest rates.
7. How does a rise in interest rates affect the flow of new loans and the creation of
new deposits?
8. Give a brief account of the base-multiplier model of money supply determination.
9. compare and contrast a) the functions and b) the balance sheet
of banks and building societies.
4. NON-DEPOSIT-TAKING INSTITUTIONS p. 108-134
4.1 INSURANCE COMPANIES

4.2 PENSION FUNDS
4.3 UNIT TRUSTS
4.4 NDTI s AND THE FLOW OF FUNDS
4.5 SHORT-TERMISM AND OTHER CRITICISMS

· what services are provided by each of the main categories of non-deposit-taking
intermediary
· what assets are held by each
· the comparative size of each as measured by total assets and inflows of funds
· where they have directed their funds during the last year or so
· whether they are in any way responsible for what is often called the problem of
‘short-termism’
1. Briefly summarise the key differences between DTIs and NDTIs.

2. What different things are savers looking for when they hold funds with
(a DTIs and b) with NDTIs?
3. Distinguish between funded and non-funded pension schemes. Would you worry
if you were a member of the latter?
4. When looking at the assets of financial firms, distinguish between ‘holdings at
year end’, ‘net acquisitions’ and turnover’. Which category of figures is always
likely to be the smallest?
5. Suppose that mortality rates suddenly became less predictable. How would you
expect that to affect long-term insurance companies’ choice of assets?
6. Explain how insurance companies try to deal with the problems of ‘moral hazard’
and ‘adverse selection’.
7. Why do shares in closed-end mutual funds often sell for less than the value of their
underlying assets?
8. Explain what is meant by ‘short-termism’.

9. Suppose it could be shown that the behaviour or NDTIs contributes to the

problem. What remedies might you suggest?
5. THE MONEY MARKETS p. 137-166
5.1 THE DISCOUNT MARKET
5.2 THE ‘PARALLEL’ MARKETS

5.3 THE INTERBANK MARKET
5.4 THE MARKET FOR CERTIFICATES OF DEPOSITS
5.5 THE COMMERCIAL PAPER MARKET
5.6 THE LOCAL AUTHORITY MARKET
5.7 REPURCHASE AGREEMENTS
5.8 THE EUROMARKETS
5.9 THE SIGNIFICANCE OF THE PARALLEL MARKETS
5.3 MONETARY POLICY AND THE MONEY MARKETS

· who uses the money markets and for what purpose
· what the various money markets are
· how different money market instruments are priced
· why ‘money market operations’ are important to central banks
· how to read, interpret and analyse data relating to the money market
1. How do money markets differ from capital markets?

2. Who are the main users of money markets?
3. What is the difference between money market instruments quoted ‘on a discount
basis’ and ‘on a yield basis’? Suppose that one-month treasury bills and one-
month CDs are both quoted as having rate of return of 5 per cent. Which gives
the higher return to an investor?
4. Suppose the expectation develops that long-term interest rates are likely to fall in
future. What is this likely to do to the supply of commercial paper and why?
5. Suppose that the government makes a major sale of bonds to the M4 private
sector. Explain the likely effect of this on
6. the liquidity of the banking system and
7. the demand for money market instruments
8. Discuss the various ways in which the central bank could respond to the money
market developments.
9. Imagine that the central bank is concerned about the rate of growth of credit in
the economy. Explain how it might use its position in the repo market to tackle
this problem. Work an example to illustrate how it might use gilt repo to raise
interest rates from 5 per cent to 5.5 per cent.
6. THE CAPITAL MARKETS p. 169-218
6.1 THE IMPORTANCE OF CAPITAL MARKETS

6.2 CHARATERISTICS OF BONDS AND EQUITIES
6.3 BONDS

6.4 EQUITIES
6.5 THE TRADING OF BONDS AND EQUITIES
6.6 THE SUPPLY OF BONDS AND EQUITIES
6.4 THE DEMAND FOR BONDS AND EQUITIES
6.4.1 THE DEMAND FOR BONDS
6.4.2 THE DEMAND FOR EQUITIES
6.5 THE BEHAVIOUR OF SECURITY PRICES

· what the capital markets are
· who uses them
· why they are important
· the characteristics of the instruments traded in the capital markets
· the arrangements for trading these instruments
· some basic principles relating to the pricing of these instruments
· what causes their prices to change
· how to read and analyse news and data relating to capital markets
1. What are the advantages to

2. lenders and
3. borrowers of an active ‘secondary’ market for securities?
4. Why does the calculation of a ‘present value’ of a security involve discounting?
5. Which of the following would be likely to show the greatest short-run price
volatility:
6. a short-dated bond,
7. a long-dated bond,
8. a share in a microelectronics company?
Explain your choice.
4. when market interest rates are 10 per cent, what relationship would you expect
between the price and redemption yields of two 8 per cent bonds, one maturing
in three years, the other maturing in ten years?
5. Give two reasons why institutions like banks prefer to hold short-dated rather
than long-dated bonds.
6. distinguish between a ‘quote-driven’ market and an ‘order-driven’ market.
7. Explain the terms: dirty price, clean price accrued
interest
interest yield redemption yield
8. Explain the terms: market capitalisation
dividend yield,
P/E ratio
7. INTEREST RATES p. 221-251
7.1 THE RATE OF INTEREST

7.1.1 NOMINAL AND REAL INTEREST RATES
7.2 THE LOANABLE FUNDS THEORY OF REAL INTEREST RATES

7.2.1 PROBLEMS WITH THE LOANABLE FUNDS THEORY AND FISHER EFFECT
7.3 LOANABLE FUNDS IN AN UNCERTAIN ECONOMY

7.4 THE LIQUIDITY PREFERENCE THEORY OF INTEREST RATES
7.5 LOANABLE FUNDS, LIQUIDITY PREFERENCE AND MONETARY POLICY
7.6 THE MONETARY AUTHORITIES AND THE RATE OF INTEREST

7.6.1 LOANBALE FUNDS, LIQUIDITY PREFERENCE AND MONETARY POLICY
7.7 THE STRUCTURE OF INTERST RATES

7.7.1 THE TERM STRUCTURE OF INTEREST RATES
7.7.2 THE PURE EXPECTATIONS THEORY OF INTEREST RATE STRUCTURE
7.7.3 TERM PREMIUMS
7.7.4 MARKET SEGMENTATION
7.7.5 PREFERRED HABITAT
7.7.6 A SUMMARY OF VIEWS ON MATURITY SUBSTITUTABILITY
7.8 THE SIGNIFICANCE OF TERM STRUCTURE THEORIES

· the relationship between nominal and real rates of interest
· the loanable funds theory of real interest rates and its adaptation to deal with
nominal interest rates
· the impact on the demand for and supply of loanable funds of uncertainty
· the liquidity preference theory of interest rates and how it relates to the loanable
funds approach
· how the monetary authorities influence but do not fully control the general level of
interest rates in the economy
· the meaning of the structure of interest rates and the various theories used to
explain the term structure
1. How would you expect an increase in the propensity to save to affect the general
level of interest rates in an economy?
2. Explain how an increase in the rate of inflation might affect
a) real interest rates b) nominal interest rates.
3. Why are some lenders capital risk-averse and others income risk-averse?
4. What slope will the yield curve have when the market is dominated by capital risk
aversion?
5. Why might interest rates payable on long-term, ‘risk free’ government bonds
include a term premium?
6. What conclusion might you draw about future interest rates if a positive term
premium were to increase?
8. FOREIGN EXCHANGE MARKETS p. 254-281
8.1 THE NATURE OF FOREX MARKETS

8.2 THE EFFICIENT MARKETS HYPOTHESIS
8.3 INTEREST RATE PARITY
8.4 OTHER FOREIGN EXCHANGE MARKET RULES

8.4.1 DIFFERENCES IN THE INTEREST RATES AMONG COUNTRIES (THE FISHER
EFFECT)
8.4.2 THE DETERMINANTS OF SPOT EXCHANGE RATES (PURCHASING POWER PARITY)
8.4.3 MARKET EFFICIENCY AND THE FOREX MARKETS
8.5 ALTERNATIVE VIEWS OF FOREX MARKETS

8.5.1 EXCHANGE RATE OVERSHOOTING AND RATIONAL BUBBLES
8.5.2 IRRATIONALITY AND DIVERSE EXPECTATIONS
8.6 FIXED EXCHANGE RATE SYSTEMS
8.7 MONETARY UNION IN EUROPE

8.7.1 THE EARLY TRAVAILS OF THE EURO
8.7.2 THE UK AND THE EURO

· how exchange rates are expressed
· how the efficient markets hypothesis can be applied to foreign exchange markets
· the nature of the relationship between spot and forward rates of exchange
· the meaning and significance of purchasing power parity
· the various explanations of exchange rates changes
· approaches to foreign exchange risk
· the arguments for and against fixed exchange rates
· the arguments for and against monetary union
1. Under what circumstances might speculation in a market be regarded as a good

thing?
2. How might one use the spot markets to obtain protection against foreign exchange
risk?
3. What advantage do the forward markets have for this purpose?
4. Under what circumstances might speculators perform the role normally played by
arbitrageurs in foreign exchange markets - that of removing inconsistencies
among prices? (consider the relationship between forward and future spot rates of
exchange).
5. Explain the difference between being a member of the old European Monetary
system before 1999 and a member of the eurozone from 1999 onwards.
9. EXCHANGE RATES RISK, DERIVATIVES MARKETS AND SPECULATION

p. 285-309
9.1 FORMS OF EXPOSURE TO EXCHANGE RATE RISK

9.2 EXCHANGE RATE RISK MANAGEMENT TECHNIQUES
9.3 DERIVATIVES MARKETS

9.3.1 FINANCIAL FUTURES

9.3.2 OPTIONS
9.3.3 EXOTIC OPTIONS
9.4 COMPARING DIFFERENT TYPES OF DERIVATIVES

9.4.1 EXCHANGE-TRADED DERIVATIVES VERSUS OTC PRODUCTS
9.4.2 FORWARD VERSUS FUTURES CONTRACTS
9.4.3 FORWARD AND FUTURES CONTRACTS VERSUS OPTIONS
9.5 THE USE OF ABUSE DERIVATIVES

· the nature of exchange rate risk
· the meaning of hedging against risk
· a definition of derivatives markets
· the nature of financial futures markets
· how financial futures can be used to hedge against risk
· the different forms of options and their use
· a comparison of the different forms of hedging available in derivative and
forward markets
· the problems associated with derivatives markets
1. Consider the relative advantages and disadvantages of using forward contracts,

futures contracts and options as means of speculation.
2. How do futures markets seek to protect themselves and their clients against
default risk?
3. Why is it more risky to write (sell) options contracts than to buy them?
4. Why might the increased protection provided to individual traders by the
derivatives markets increase the risk of the whole financial system running into
difficulties?
5. Consider the following statement (section 9.3.1 of the chapter)
A speculator who felt that interest rates were likely to rise or a
currency’s value decline would go short in the relevant asset by
selling a futures contract
a) why would a speculator go short rather than long in these two cases?
b) what does going short in interest rates mean?
c) how does selling a futures contract allow one to go short?
10. INTERNATIONAL CAPITAL MARKETS p. 312-330
10.1 THE WORLD CAPITAL MARKET
10.2 EUROCURRENCIES
10.2 1 THE GROWTH OF THE EUROCURRENCY MARKETS
Compiled by senior teacher V. Burbene 10

. VIKO, Faculty of Economics, 2004
10.3 THE NATURE OF THE MARKET
10.4 ISSUES RELATING TO EUROCURRENCY MARKETS
10.3 TECHNIQUES AND INSTRUMENTS IN THE EUROBOND AND EURONOTE

MARKET
10.4 THE DAMAGING EFFECTS OF INTERNATIONAL MARKETS
CONTROVERCIES FOR THE MILLENIUM

· the reasons for international capital markets flows
· what eurocurrencies are
· why eurocurrency markets grew so rapidly
· the characteristics of the eurocurrency and eurobond market
· the possible connection between eurocurrency markets and inflation
· what interest rate swaps are and how they are used
· the arguments for and against attempting to control international capital mobility
1. How is money actually transferred from an account in one country to an account

in another?
2. Has the growth of the euromarkets been, on balance, a positive development for
the world economy?
3. How many reasons can you think up for preferring fixed to floating rate loans and
vice versa?
4. What is:
5. EURIBOR?
6. a euroeuro?
7. a swaption
8. a plain vanilla swap
9. a Tobin tax?
10. If you swapped a floating rate payment for a fixed rate payment, would you gain
or lose if interest rates unexpectedly rose/ Why?
11. do you think that, on balance, free international capital mobility is a good or bad
thing? Why?
11. GOVERNMENT BORRWING AND FINANCIAL MARKETS p. 333-353
11.1 THE MEASUREMENT OF PUBLIC DEFICITS AND DEBT
11.2 FINANCING THE PSNCR

11.2.1 THE PSNCR AND INTEREST RATES
11.2.2 THE SALE OF BONDS TO BANKS
11.2.3 THE SALE OF BONDS OVERSEAS

11.2.4 PSNCR, INTEREST RATES AND THE MONEY SUPPLY
11.3 THE PUBLIC DEBT AND OPEN MARKET OPERATIONS

11.4 DEBT MANAGEMENT AND INTEREST RATE STRUCTURE

· the reasons for the existence of public sector deficits and the public debts
· the definition of the public sector net cash requirement (PSNCR) and other
measures of government deficits and government debt
· the arguments against governments running high public sector deficits and having
high public debt
· the nature of the links between the PSNCR, the interest rate and the growth of the
money supply
· the importance of government policy towards public sector deficits and the public
debt for financial markets
· the way in which the attitudes of financial markets influence governments
· the significance of the management of the public debt for the interest rate
structure
1. Why have governments frequently had difficulty in controlling the size of the
PSNCR?
2. Consider the various ways in which the figures for the PSNCR may be
interpreted. Why are so many interpretations possible?
3. Explain the theoretical relationship between the PSNCR, the rate of growth of the
money stock and interest rates. Why this relationship unlikely to hold in
practice?
4. How does the existence of the public debt complicate the funding of the PSNCR?
5. Who are the international credit-rating agencies? Why do they exist?
6. The public debt/GDP ratio is described in the text as ‘rather odd’. In what ways is
it odd?
7. Explain the difference between:
8. the PSNCR and the public sector current balance
9. the PSNCR and PSBR
10. the public sector deficit and the public debt
11. the public debt and the national debt
12. THE REGULATIO OF FINACIAL MARKETS p. 357-389
12.1 THE THEORY OF REGULATION
12.2 FINANCIAL REGULATION IN THE UK

12.2.1 REGULATORY CHANGES IN THE 1980s
12.2.2 SUPERVISION OF THE BANKING SYSTEM
12.2.3 THE 1998 REFORMS

12.3 THE EUROPEAN UNION AND FINANCIAL REGULATION

12.3.1 REGULATION OF THE BANKING INDUSTRY IN THE EU
12.3.2 REGULATION OF THE SECURITIES MARKETS IN THE EU
12.3.3 THE REGULATION OF INSURANCE SERVICES IN THE EU
12.4 THE PROBLEMS OF GLOBALISATION AND

THE GROWING COMPLEXITY OF DERIVATIVES MARKETS

· general reasons for and against regulation
· specific reasons for the regulation of the financial industry
· arguments for and against self-regulation of financial markets
· details of the regulation of banking and financial services across the European
Union
· the nature of the problems caused by the globalisation of the financial sector and
by the developments in derivatives markets
· details of the international attempts to deal with regulatory problems
1. What have been the impacts on financial markets of:
2. internationalisation of the markets
3. technological change?
4. Consider the arguments for and against self-regulation of financial markets as
opposed to statutory regulation.
5. How important is moral hazard as a determinant of people’s behaviour? Provide
examples of moral hazard related both to everyday life and to the financial
services industry.
6. Under what circumstances might regulation decrease rather than increase the
stability of an industry?
7. List the arguments in favour of host-country regulation and discuss them.
8. Why did the European Commission favour home-country regulation/
9. Why is it thought that simple capital adequacy ratios are insufficient as a basis for
supervising the activities of firms engaged in securities trading?
10. What is meant by systematic risk in connection with thebanking industry/
11. Why is consumer protection such an important issue in insurance?


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FINANCIAL MARKETS AND ISTITUTIONS by Peter Howells and Keith Bain,

PETER HOWELLS is a professor of Economics at the University of East

Visit the Financial Markets and Institutions companion Web site at

uRead and study the chapter selected;

uAnalyse the main concepts and principles;

uAnswer the questions given below each chapter.

uWrite a summary of the chapter that have read and analysed.

uA computer version of this work must be presented together with a compiled

TOPICS SUGGESTED according to the chapters given in the book

Compiled by senior teacher V. Burbene 1. VIKO, Faculty of Economics, 2004

1. THE FINANCIAL SYSTEM p. 2-26

1. THE FINANCIAL SYSTEM p. 2-26

1.1 FINANCIAL INSTITUTIONS

1.2. FINANCIAL MARKETS

1.3. LENDERS AND BORROWERS

You will learn in this chapter:

Compiled by senior teacher V. Burbene 2. VIKO, Faculty of Economics, 2004

1. List the functions of a financial system.

2. THE FINANCIAL SYSTEM AND THE REAL ECONOMY p. 46-62

2.1 LENDING, BORROWING AND NATIONAL INCOME

2.2 FINANCIAL ACTIVITY AND THE LEVEL OF AGGREGATE DEMAND

2.3 THE COMPOSITION OF AGGREGATE DEMAND

2.4 THE FINANCIAL SYSTEM AND RESOURCE ALLOCATION

You will learn in this chapter:

1. Distinguish between ‘saving’, ‘lending’ and ‘financial surplus’.

Compiled by senior teacher V. Burbene 3. VIKO, Faculty of Economics, 2004

3. DEPOSIT TAKING INSTITUTIONS p. 65-101

3.1 THE BANK OF ENGLAND

3.1.1 THE CONDUCT OF MONETARY POLICY

3.3 BANKS AND THE CREATION OF MONEY

3.4 CONSTRAINTS ON BANK LENDING

3.5 BUILDING SOCIETIES

3.6 LIABILITY MANAGEMENT

You will learn in this chapter:

1. Distinguish between deposit-taking and non-deposit-taking institutions. Explain

Compiled by senior teacher V. Burbene 4. VIKO, Faculty of Economics, 2004

4. NON-DEPOSIT-TAKING INSTITUTIONS p. 108-134

4.1 INSURANCE COMPANIES

You will learn in this chapter:

1. Briefly summarise the key differences between DTIs and NDTIs.

Compiled by senior teacher V. Burbene 5. VIKO, Faculty of Economics, 2004

9. Suppose it could be shown that the behaviour or NDTIs contributes to the

5. THE MONEY MARKETS p. 137-166

5.1 THE DISCOUNT MARKET

5.2 THE ‘PARALLEL’ MARKETS

5.3 MONETARY POLICY AND THE MONEY MARKETS

You will learn in this chapter:

1. How do money markets differ from capital markets?

6.1 THE IMPORTANCE OF CAPITAL MARKETS

Compiled by senior teacher V. Burbene 6. VIKO, Faculty of Economics, 2004

You will learn in this chapter:

1. What are the advantages to

7.1 THE RATE OF INTEREST

7.2 THE LOANABLE FUNDS THEORY OF REAL INTEREST RATES

7.3 LOANABLE FUNDS IN AN UNCERTAIN ECONOMY

7.6 THE MONETARY AUTHORITIES AND THE RATE OF INTEREST

7.7 THE STRUCTURE OF INTERST RATES

7.8 THE SIGNIFICANCE OF TERM STRUCTURE THEORIES

You will learn in this chapter:

8. FOREIGN EXCHANGE MARKETS p. 254-281

8.1 THE NATURE OF FOREX MARKETS

8.4 OTHER FOREIGN EXCHANGE MARKET RULES

Compiled by senior teacher V. Burbene 8. VIKO, Faculty of Economics, 2004