Money and Banking - Lecture 01

alright guys attention and some of you may have to move a little closer this is B a F 2 1 is it 2 1 1 right alright money you zoom in a little bit yes gotta go man I want these high identities oh okay you want higher okay we open the next you open from here an extra bag okay wow this amazing and if you're open an extra leg okay it's nice and you got a little bit you know so we can read what it says okay so that's good enough and then keep going and then to zoom out later on alright so money in banking my name is harder hard to remember even harder to pronounce the last name appears to be a little easier my grandfather was Peters so last name becomes a trough okay but the easy first name is Chris okay is easier to remember all right so money and banking where do we begin well first of all this course turns out to be pretty much one of the most difficult courses to teach can there a lot of these two guys separate alright guys guys guys guys guys you separate move away move away by the chair lunch desk no no no no another desk go your whole self you know somebody there's some other place because I had none of you why it's a difficult subject and there are many many reasons first reason is that this is your first course in finance that's the very first reason first courses are always difficult now this course is part of what is known as financial economics and financial economics is a huge field huge between finance in economics it's in between the two of them it's basically the field that I specialize that I started to specialize close to 20 years ago the two main the two main areas in here are money in which is the focus of this course and the second field is called financial markets and institutions which is the focus of next semester okay now what is financial economics about financial economics studies the financial system financial economics is the subject which studies the financial system what is the financial system financial system consists for number one financial institutions that's number one number two consists and then shall markets and finally as the component of financial instruments instruments will be stocks bonds and other assets of fat these are also financial asked stocks bonds whatever else is a bad so this is the general structure of the financial system but important part of financial institutions are banks and it's very unclear as you'll find out this semester what the bank is so we know what is a commercial bank and we'll spend up quite a few weeks studying commercial X that stated we know it's not what is a central central bank and going to spend a lot of weeks in Italy to make and we know what is an investment bank and investment bank is part of Financial Institutions not part of this course open here so potential economic studies the financial system and financial economics is about the following how the financial system affects the economy so financial economics is the subject of how the financial system affects the economy so our financial institutions affecting our financial markets affect the economy in how financial systems sorry instant effect each economy most of this economy will be the crush it on the macro become so the financial system affects mostly the macro economy now let's try to get the macro you've studied macro economics and macro economy the way I started it best from you know that macroeconomics is their art I started from one textbook from second third fourth I started five textbooks and finally I found back in the old days that's 25 years ago one where I actually understood what it's about well it's about GDP in other words macro economy is about national output what people produce so the economy is do we produce books or Jews milk or phones or education or hospitals whatever people produce number one is number two sorry it is employment and employment is about just like why there's so many jobs in the capital let's have Phnom Penh and a few jobs outside the capital all right why there's so many jobs in Manila a few jobs in the rest of the Philippines I mean you got one thousand ten thousand violence can no jobs there all the jobs are in Manila it's okay so if macroeconomics tries to explain jobs why there are or aren't many jobs number three macroeconomics tries to explain wages why salaries are high or low what effects salaries economy macroeconomics is focuses about government is in governor month will be spending and taxes macroeconomics is about importing exports okay and there was number six which I can't remember right now because that spent 25 years ago but getting that to focus on the connection but actually economics is how financial institutions affect production how institutions affect jobs banks may be creating jobs may be destroying jobs how financial institutions affect wages may be banks make salaries higher maybe they'd make salaries love okay how do commercial banks affect government taxes or spending well example banks or government borrows money from the best so thanks the facts then well how financial institutions of that imports and exports how they help the country important well I mean he's exactly business borrows money that's it bank gets the money and buys for imports on that's on the motorcycles which they sell one same thing applies for financial markets is going to be currency market is going to be bond market stock market same thing applies with financial agent so the question is for me I can't see how these things here how these three pieces affect the macro economy interest rates sex interest rates interest rates are let's introduce today the most important price in the car interest rates are the most important price of economy interest rates are the price per capitalist economy runs on capital and capital is the source of investing and investment so interest rates are the main determinant of or the main price but interest rates are also the main component of savings and savings finance capital capital is not created out of nowhere capital comes anaesthetics people gotta save something and then they use the saved is capital to build whatever they build production infrastructure and so on all right so that's basically the financial system that's basically what financial economics is okay now I can reuse this one and recycle history and explain the next little piece of what we're going to be studying a lot a major portion over here within money and I put it up here or to put it down here number three a very special field of financial economics is called monetary economics monetary eat what is monetary monetary monetary means of money money so monetary economics is the subject of how money affects the economy how did you create more money how it will affect production how to affect your salaries how it will affect government spending okay well if the government creates money like right together they'll be spending more of it how if you create more money will affect exports or imports or how it will affect interest rate so this is the subject of monetary hey there is one other separate piece which is part of this monetary economics the second piece is cred credit is about borrowing money borrowing money quickly from your friend or in our case we study borrowing money from financial institutions and specifically banks so monitoring economics is how money in credit affect the macro economy but here today a lot of people are borrowing a lot of money from commercial banks to buy houses to buy real estate but buying the houses you just want to buy a house this means that you drive the price of house is higher the price of houses higher it means that it becomes profitable to build more houses so by providing credit to buy houses and housing becomes more profitable to build there will be a lot of businesses who will start building you see right over the others one construction scene on the other side of the street is Americans start you see all the city is a big construction site which means possibly a lot of jobs which means that people in the construction business are going to be getting more jobs in probably higher wages and probably higher salaries okay well lastly easy then it comes the part of maybe too much credit is not a good thing maybe if you create too much credit the whole banking system will just crash and collapse and this happens regularly pretty much every country which has over done credit credit is kind of like a nice alcohol trade you get a little bit get to feel good okay but get too much Meaghan Cronkite and the problem would credit the stock credit you know an economy can quickly it easy to get drunk on credit and the facts we all follows like a real is state Bob when everyone's crazy about buying real estate because they think it's the greatest investment in the world except is it is investing in real estate safe is it risky little risky risky real estate is a very risky investment we're going to get to this close to the end of the course the problem is that too much money in too much credit causes too many problems for the economy the first problem is solved and you'll spend a lot of time with is going in relation and in is the economy significant it makes people poor it makes the money worth less okay so inflation is a serious problem this is all part of monetary economics which is part of financial economics let's see and get down to what are we going to be doing in this course right alright so a number of things this book is what I use 25 years ago to study that build its own ego financial markets which is the same as financial economics okay this book is by Michigan just okay by mission turns out that I started from it 25 years ago it was a decent book edition and the book was relatively decent back then I didn't see a lot of problems with the book later on as I've been whirling and starting and specializing in this field I got to see home there's a little mistake here they're all this is not like this is done right and I came to the point where I realized there five to ten mistakes per chapter sometimes more later on I realize that as I keep teaching I spent half the time explaining the mistakes and errors in the textbook where most of the time goes into what's wrong with it that's what we're supposed to teaching things right and again for a while students began to complain more widely when using this book and that then one of the reason was well there wasn't anything much better now thanks since then at least I have changed quite a bit and I have found for you an infinitely there it's called the mystery and if I see the mystery of Bank the mystery of banking is a lot easier I thought what I was doing like you that money bank it was very difficult and very and you just started from just but this textbook it is difficult and it is complicated because it makes things more complicated really oh okay turns out things are a lot easier a lot simpler a lot more straight for so many okay everyone having fun okay thank you now we can do my that's right the next book textbook is called the mystery because it is a mystery for most people it is especially banking is a mystery for most people who completes the course of money banking after that it's still in history and you'll find out what mystery bank the author is Murray has got a sub n maybe yes there's one in the middle I use this textbook in 2007 2008 when I was teaching back in Europe at the Amer University in Bulgaria and students were very happy with the book they really learned a lot I even used it for first-year students to teach first basic math of economics it's got a few additions it's a relatively old book but then this edition will be 2008 and here's the best part it's free to download so it is like mystery the banking run barred PDF work free pdf work free pdf download or download free whatever mr. rock-hard PDF click you're even better that's worse than me on Google right you do Google all day I just do it what I need to do so this is about the textbook now this textbook will not cover or will cover most now it's the second good news it's small this is everything that you cover and that's about four hundred and one hundred and ninety pages oh so you will notice something else the letters are big and rare so that's our chapter one you can even print two pages anything read just fine okay you can print - you can really just one so that's the next thing getting back to what we're doing this textbook as you'll see later on is a giant mess it's not well organized it's not clear chapters are complete this order this textbook is the exact opposite and I'll do a little bit of that we're going to do of you guys should open yes question unfortunately enough I will explain that within the next ten minutes for you I'm beginning to answer people ten long answer to your question all right it's very nice in the public says there is part one and part one is just called money and part one money powders chapters one two three four so four five chapters we're going to fall focus in time and only on mine that's it makes it very easy it makes it very quick it makes it very straightforward now these chapters are tying this includes from page 1 to page 74 874 okay so it's 74 pages they aren't very big they're easy written of makers one charge so it's everything would and now comes the next nice thing when you're done it's quiz one that is straight wall right next you want the date yes today is number two 21 days from today is 23 2013 Oh No - banking now you'll get to notice very quickly and very easily that there is not exactly too much about Bank his fixin is a chapter called loan banking will study loan banking we know exactly long banking means the next chapter of interest 6 then 7 is the closet man we know what is deposit banking we'll study where it comes from our first did you open your little I told you have the book there with you no okay you have you should be able to easily download the book you should be able to open the book now with your eye choice whatever your toy is right and you should be able to actually open up just scroll through and follow what I'm doing here today alright and then number eight will be sculpt oh this is long this is deposit man the merger of loan banking and deposit banking is called commercial so commercial those that accept deposits and make bones so that's what commercial banking is about a number eight is called the limit on credit expansion limit and credit expansion relates to what prevents commercial banks to create credit forever can't we just create credit forever and keep real estate prices higher higher and higher and all of us get rich on high real can you do just that I think if you just double the prices of real estate you work twice more rich well of course not but the question is why so I'm going to spend maybe close to almost oh quit talking about it why can't just banks create credit forever why didn't just create more and more crap there are limits well it's kind of like can't they just always drink and drink all the time you won't point get drunk okay it can't keep drinking more and more and more and they they're damaging effect to your health okay first it gets sleepy but keep doing long time liver goes bad and you keep doing it go you've done okay same thing here can we can sufficient money credit destroy the banking system yes of course sure we've seen it dozens or hundreds of times he's far too much credit too much money and too much credit does destroy employing the banking system and with it ruins the nation and with it ruins most businesses and put it ruins most bad number it is explain why so this Bank is commercial bank ok part three I keep answering slowly your question is and if you open the textbook for those of people who have your eyes closed open it will be which is central how the central bank helps commercial banks to expand more bread sometimes kind of like we'll also call it they allowance the central bank is there they allow commercial vans number ten number eleven and I think will probably cover one little extra chapter 12 which is the origins essentially how central banks came in the world were the first essential thanks why they were created in other words what is the function what is the history you'd understand what happened back to you all the days because people think of the central bank is a very nice thing it keeps the economy running in what well we need to look at why they got created in the first place and that will be chapter twelve now commercial banking was you understand money is easy okay this these are pages from 75 to page to page 124 okay and yes question okay we got some intelligent students this will be pages 125 page and one one nine and morale slightly not for sure clothesline this will be called myth that answers about half of your question all right and this these are small chapters got understand about these twelve chapters they're about fourteen pages per chapter a lot of you'll be able to cover Luther the eighth chapter in one hour but more often will cover a chapter in July so we'll cover this in about two weeks we'll cover this in about two weeks we'll cover this in about three weeks approximately two to three that's about seven or eight days okay and then we'll focus over the winter over the end so after that we gotta switch to this book and expand into the financial system maybe we'll cover let's see we'll cover and I did a little bit chatter - but introduction to the oops financial system so chapter two will provide a short introduction to financial institutions and financial markets and financial instruments four five and six for these are all small chapters we will have covered a lot of them from here these are chapters on interest rates remember interest rate is the most important price in the whole economy it is the price of capital so we need to or you need to understand well what interest rates are interest rates are the foundation of fine finance is about two things is about risk that's honest and return in return is the money that you get from invest and risk is what's the chance of getting your money well interest rate is a or the return on investment so four five and six focus on the return part in my next okay in other courses maybe also in this one we'll also one point spend time on progresses like what is the risk if there is too much money in the economy or if there's too much credit in economy now one of the risk associated with inflation one of the risks associated with bubbles it may be later on we'll discuss what is the risk associated they have just thrown what this course is about I'm thinking part three these chapters nothing intense chapters nine in ten at least finally the textbook introduced chapters on financial crisis financial crisis is what goes wrong with the banking and financial system and how the banking financial system can crash the whole economy well where do financial crisis come from easy they come from too much money too much credit okay so when you're drinking that's kind of like getting drunk in a financial crisis is Doug hangover after too much drinking you feel sick for a day two or three well that's the sickness of disease of the economy which economy suffers from too much money or too much craft okay so financial crisis will they're divided into developed countries in a hood hey you could be Britain or the US or Japan and soccer the horrible consequences of too much money and credit or tekubi but developing sometimes we call it the emerging like Thailand 15 or 20 20 years ago okay so the emerging economies also suffer horrible consequences from too much money for too much so that's 9 and 10 and let's see I'm thinking I don't know yet we'll see how much time we have and we'll see how fast you are when I can cover whole book in eight weeks the question is can you point is to go slowly steady step by step so you can learn well so what I have is fourteen fifty and sixty is a little bit more on sexual thing let's call it let's call it a little different monetary policy you've already studied monetary policy a little bit you can spend a week or two weeks on monetary policy what is it monetary policy monetary policy is how the central bank controls money supply monetary policy is how the central bank controls money supply or a more modern days unfortunately loses control all right so these are from what I'm saying here you're not candidates again these Michigan chapters are small the whole textbook is like 25 chapters about 600 pages of these are about 20 pages for childhood the chapters are small a lot smaller than other textbooks like relatively easy that again we don't have to cover a lot now they may want extra topic probably little time of the house and some time over here it's called the global financial crisis of 2008 there's been a crisis eight financial crisis eight years ago and you need to understand what it was what caused it what happened what are the consequences in wine is due today it is later suffer from the horrible consequences of that financial crisis and now this crisis affects developing countries like well even now Thailand Cambodia Vietnam it's called Indochina how it affects the local economies over here because it affects them in one good way and in another very very horrible way okay the reaction over there of extremely low interest rates if caused a monstrous huge real estate bubble here as well as in Thailand the countries around and with these bubbles burst we made it will study what are some of the expected constants all right well that's my a little story for today let's see what questions you may have first of all for you get the textbook though meaning the first coat of Rob barber let's focus on that thing and with it we just go step by step chapter by chapter slow and then as we get to a particular part we get through the quiz or an exam questions any questions easy alright well I'm gonna get the addendum up if there's anything you can see in the office or house next time next time it will help you if you've already print parts just the chapter you see these are I already show you these are the first five chapters this is able to the first five chapters so it will help you so that you can follow as I'm writing on the board as I'm showing it whatever it is you know which pages and you can keep up and follow it's going to be a lot of studying prepared by us

Channel: Krassimir Petrov

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Id: fLBZb_v0ewM

Length: 43min 50sec (2630 seconds)

Published: Tue Nov 01 2016