Money and Financial Markets
01. WHY MONEY AND FINANCIAL MARKETS?
We cover
Ten good reasons for better knowing monetary and
financial phenomena
Recent trends in financial markets
Specificities of the study of money and financial markets
Money and Financial Markets
01. WHY MONEY AND FINANCIAL MARKETS?
So that one
Understands the importance of knowing the monetary
and financial phenomena
Understands that money and financial markets affect
people's living conditions, as well as business and public
sector activities
Identifies the main recent trends in financial markets
Recognizes the specificities inherent to the study of
money and financial markets
Money and Financial Markets
01. WHY MONEY AND FINANCIAL MARKETS?
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
04. The financial system relies on economic agents’ promises and trust
05. The price of financial assets is always changing
06. There is risk in every investment
07. Economic agents seek to diversify the risk of their investments
08. The value of a financial asset depends on the prices of other financial assets
09. At a given moment, there is a unique price for a financial asset
10. The financial system is subject to attempts of fraud and deviant behavior
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
Money affects how individuals and
organizations make production,
consumption, investment, and savings
decisions
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
Think twice, before deciding to buy a new
home, as it may well be the case that
successive rise in interest rates are just
around the corner
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
Innovation and complexity
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
04. The financial system relies on economic agents’ promises and trust
Financial assets are contracts
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
04. The financial system relies on economic agents’ promises and trust
05. The price of financial assets is always changing
Demand and supply for financial assets
(just like any other asset), price instability
(volatility)
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
04. The financial system relies on economic agents’ promises and trust
05. The price of financial assets is always changing
06. There is risk in every investment
States of nature
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
04. The financial system relies on economic agents’ promises and trust
05. The price of financial assets is always changing
06. There is risk in every investment
07. Economic agents seek to diversify the risk of their investments
Risk exposure is manageable, namely
through diversification and hedging
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
04. The financial system relies on economic agents’ promises and trust
05. The price of financial assets is always changing
06. There is risk in every investment
07. Economic agents seek to diversify the risk of their investments
08. The value of a financial asset depends on the prices of other financial assets
The price of a financial asset not only
depends on its characteristics (absolute
pricing) but also on the observed price of
financial assets with similar characteristics
(relative pricing). Then, prices are
‘somehow’ correlated
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
04. The financial system relies on economic agents’ promises and trust
05. The price of financial assets is always changing
06. There is risk in every investment
07. Economic agents seek to diversify the risk of their investments
08. The value of a financial asset depends on the prices of other financial assets
09. At a given moment, there is a unique price for a financial asset
Law of one price and arbitrage
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MFM | 2021/2022 | chapter 01
Ten good reasons for better knowing monetary and financial phenomena
01. Money impacts the all economy
02. Central banks have the power to influence the budgets of economic agents
03. Financial systems change very quickly
04. The financial system relies on economic agents’ promises and trust
05. The price of financial assets is always changing
06. There is risk in every investment
07. Economic agents seek to diversify the risk of their investments
08. The value of a financial asset depends on the prices of other financial assets
09. At a given moment, there is a unique price for a financial asset
10. The financial system is subject to attempts of fraud and deviant behavior
Other people’s money, greed and
complexity
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MFM | 2021/2022 | chapter 01
Recent trends in financial markets
Liberalization
Globalization
Automation
Institutionalization
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MFM | 2021/2022 | chapter 01
Recent trends in financial markets
Liberalization
Globalization
Automation
Institutionalization
Private initiative, elimination of barriers to entry, international capital
flows, encouragement of increased competition, innovation, and,
regulation
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MFM | 2021/2022 | chapter 01
Recent trends in financial markets
Liberalization
Globalization
Automation
Institutionalization
Liberalization, information and communication technologies,
institutional investors, and international standards
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MFM | 2021/2022 | chapter 01
Recent trends in financial markets
Liberalization
Globalization
Automation
Institutionalization
Information and communication technologies, and risks (operational
and systemic) – Black Monday, program trading, and circuit breakers
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MFM | 2021/2022 | chapter 01
Recent trends in financial markets
Liberalization
Globalization
Automation
Institutionalization
Increasing role of institutional investors (e.g. banks, insurance
companies, investment funds and pension funds), and risks (regulatory
capture)
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MFM | 2021/2022 | chapter 01
Specificities of the study of money and financial markets
Complexity
Multi-disciplinary
Large and diverse literature
Approaches
Ethics and responsibility
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MFM | 2021/2022 | chapter 01
Specificities of the study of money and financial markets
Complexity
Multi-disciplinary
Large and diverse literature
Approaches
Ethics and responsibility
http://www.fna.fi
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MFM | 2021/2022 | chapter 01
Readings
Mishkin, F. S.; Mathews, K.; and Giuliodori, M. 2013. The Economics of Money, Banking and Financial Markets: European
Edition. Pearson Education Limited. Chapter 01