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62-220-365 Money and Banking

Fall 2007

Instructor: Dr. Richard Anderson Email: richarda@andromeda.rutgers.edu rta2101@Columbia.edu Text: Mishkin, Frederick; Money, Banking and Financial Markets Addison Wesley; 8 edition , 2006; ISBN 0-321-42177-9 Course Outline I. An Overview of the Financial System Structure of Financial Markets Debt and Equity Markets Primary and Secondary Markets Exchanges and Over-the-Counter Markets Money and Capital Markets World Stock Markets Foreign Stock Market Indexes Chapters 1, 2 II. Money Meaning of Money Functions of Money Evolution of the Payments System The Federal Reserves Monetary Aggregates Chapter 3 III. Interest Rates Measuring Interest Rates Present Value Yield to Maturity Other Measures of Interest Rates Application: The Bond Page Bond Prices and Interest Rates Maturity and the Volatility of Bond Returns: Interest-Rate Risk The Distinction between Real and Nominal Interest Rates Chapter 4 IV. The Determination Interest Rates Theory of Asset Demand Expected Rate of Return and Risk Diversification Supply and Demand in the Bond Market Changes in Equilibrium Interest Rates Application: Changes in the Equilibrium Interest Rate Due to Expected Inflation or Business Cycle Expansions

Chapter 5 V. The Risk and Term Structure of Interest Rates Risk Structure of Interest Rates Application: The inverted yield curve Term Structure of Interest Rates Chapter 6 Midterm Exam VI. Banking and the Management of Financial Institutions The Bank Balance Sheet Balance Sheet Ratios Managing Interest-Rate Risk Gap and Duration Analysis Chapter 9 VII. Banking Industry: Structure and Competition The Evolution of the Banking Industry Bank Legislation since the Depression Chapter 10, 11 VIII. Financial Derivatives Options Financial Futures Swaps Application: Hedging with Financial Futures Organization of Trading in Financial Futures Markets Application: Hedging with Futures Options Interest-Rate Swaps Web Chapter available on Blackboard IX. Central Banks and the Federal Reserve System Formal Structure of the Federal Reserve System Board of Governors of the Federal Reserve System Federal Open Market Committee (FOMC) Chapter 12 X. Multiple Deposit Creation and the Money Supply Process The Feds Balance Sheet Federal Reserve Open Market Operations The Monetary Base The Money Supply Model and the Money Multiplier Chapter 13, 14 XI. Tools and Conduct of Monetary Policy

Open Market Operations Discount Ratey Reserve Requirements Goals of Monetary Policy Central Bank Strategy: Use of Targets The Taylor Rule, NAIRU, and the Philips Curve Chapter 15 Optional: The Foreign Exchange Market The International Financial System Foreign Exchange Market Exchange Rates in the Long Run Theory of Purchasing Power Parity Factors That Affect Rates in the Long Run Exchange Rates in the Short Run Interest Parity Condition Explaining Changes in Exchange Rates Chapter 17 Final Exam

EVALUATION: Midterm 50% Final Exam 50% GRADING CRITERIA: A AB+ B BC+ C CD 93-100 90-92 88-89 83-87 80-86 78-79 73-77 70-73 60-69