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Banking and Financial Markets Chapter1 FullText

The document provides an overview of the banking and financial markets in Bangladesh, highlighting the roles of financial markets, institutions, and money in the economy. It discusses the bond and stock markets, foreign exchange market, and the impact of interest rates and exchange rate fluctuations. Additionally, it covers the significance of financial intermediaries, monetary policy, and the relationship between money supply and economic activity.

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6 views2 pages

Banking and Financial Markets Chapter1 FullText

The document provides an overview of the banking and financial markets in Bangladesh, highlighting the roles of financial markets, institutions, and money in the economy. It discusses the bond and stock markets, foreign exchange market, and the impact of interest rates and exchange rate fluctuations. Additionally, it covers the significance of financial intermediaries, monetary policy, and the relationship between money supply and economic activity.

Uploaded by

2210833
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter-1: Banking and Financial Markets/Institutions & Financial System of Bangladesh

Preview
- To examine how the workings of financial markets such as bond, stock and foreign exchange markets affect your everyday li
- To examine how financial institutions such as banks, investment and insurance companies work
- To examine the role of money in the economy

Why Study Financial Markets?


- Financial markets are markets in which funds are transferred from people and firms who have an excess of available funds to
- Financial markets, such as bond and stock markets, are crucial to promoting greater economic efficiency by channeling funds
- Well-functioning financial markets are a key factor in producing high economic growth, and poorly performing financial marke
- Activities in financial markets also have direct effects on personal wealth, the behavior of businesses and consumers, and the

The Bond Market and Interest Rates


- A security (financial instrument) is a claim on the issuer’s future income or assets.
- A bond is a debt security that promises to make payments periodically for a specified period.
- Often referred as Debt/Bond market
- An interest rate is the cost of borrowing or the price paid for the rental of funds.

Impact of High Interest Rate


Impact of Low Interest Rate

The Stock Market


- Common stock represents a share of ownership in a corporation.
- A share of stock is a claim on the residual earnings and assets of the corporation.
- Issuing stock and selling it to the public is a way for corporations to raise funds to finance their activities.

Definition
- Return from share and bond is called !
- Certainty of getting return !
- Source of purchase: Stock exchange / Gov or public or private firms
- Times of maturity:
- Types of ownership: debt / equity
- In terms of bankruptcy who will get the preference first to get return?
- Voting right
- Share Vs Bond

The Foreign Exchange Market


- The foreign exchange market: where funds are converted from one currency into another
- The foreign exchange rate is the price of one currency in terms of another currency.
- The foreign exchange market determines the foreign exchange rate.

Impact of exchange rate fluctuation: Public & Business


- Weak Currency: Direct impact on consumer (Cost of import, traveling abroad)
- Strong Currency: Adverse impact on export.

Why Study Financial Institutions and Banking?


(1 of 3)
- Financial intermediaries: institutions that borrow funds from people who have saved and in turn make loans to people who ne
- Banks: accept deposits and make loans
- Other financial institutions: Non-banking financial institutions, insurance companies, finance companies, pension funds, mutu

(2 of 3)
- Financial innovation: the development of new financial products and services
- Can be an important force for good by making the financial system more efficient
- E-finance: the ability to deliver financial services electronically
- Financial Inclusion

(3 of 3)
- Financial crises: major disruptions in financial markets that are characterized by sharp declines in asset prices and the failure
- US Financial Crisis 2007-2008

Why Study Money and Monetary Policy?


- Evidence suggests that money, defined as anything that is generally accepted as payment for goods or services or in the rep
- Recessions/Deflation (Unemployment) and Expansions/Inflation (High Price Level) affect all of us.
- Monetary theory ties changes in the money supply to changes in aggregate economic activity and the price level.

Fiscal Policy and Monetary Policy


- Monetary policy is the management of the money supply, interest rates, inflation rate.
- Expansionary or Contractionary Monetary Policy
- Conducted in the United States by the Federal Reserve System (Fed)
- Who does in Bangladesh?
- Fiscal policy deals with government spending and taxation
- Budget deficit is the excess of expenditures over revenues for a particular year
- Budget surplus is the excess of revenues over expenditures for a particular year
- Any deficit must be financed by borrowing

Money, Business Cycles, and Inflation


- The aggregate price level is the average price of goods and services in an economy
- A continual rise in the price level (inflation) affects all economic players
- Data show a connection between the money supply and the price level

Money and Interest Rates


- Interest rates are the price of money
- Prior to 1980, the rate of money growth and the interest rate on long-term Treasury bonds were closely tied
- Since then, the relationship is less clear, but the rate of money growth is still an important determinant of interest rates

Financial System of Bangladesh


- https://www.bb.org.bd/en/index.php/financialactivity/index

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