Money and Banking: What Everyone Should Know

Overview

Course No. 5630
An economist and award-winning professor leads you in a panoramic exploration of our monetary and financial systems, their inner workings, and their crucial role and presence in your world.

Money and finance play a deeply fundamental role in your life. Now, let an expert professor lead you in a panoramic exploration of our monetary and financial systems, their inner workings, and their crucial role and presence in your world. As a guiding theme of these 36 content-rich lectures, you observe the ways in which economies require efficient and evolving financial institutions and markets to fulfill their potential.

In building a full view of our financial system, you delve into these and other vital subjects: central banks, commercial banks, and the Federal Reserve; interest rates and interest rate policy; bonds and stock markets; and foreign exchange and international banking. Across the arc of this lecture series, you’ll tackle key topics that shed light on the functioning of our financial system as a whole.

You study the critical subject of inflation and its relationship to the consumer price index and to excess money growth. You’ll investigate the causes and implications of the federal deficit and the national debt. In the international arena, you’ll learn about the implications of trade deficits in global economic relationships and the question of monetary policy coordination between nations, weighing the significant benefits to the global economy of cooperation between central banks.

This is a rare chance to gain a grounded understanding of our monetary and financial systems, and to grasp the vital elements of finance that directly affect our way of life, our national concerns, and your own life and future.

Course Lessons

01: The Importance of Money

What is money? Consider the fundamental nature of money as a social contract and a social institution that coordinates economic activity. Explore the connections between financial institutions and economic well-being, including the importance of “stable value money” to trade and the critical roles of healthy banks, efficient asset markets, and monetary policy.
Duration: 31 min

02: Money as a Social Contract

Money developed as a medium of exchange to facilitate trade. Here, learn about five stages in the evolution of money. Beginning with barter, trace the rise of commodities as money, the invention of coins, paper money backed by precious metals, and finally our era’s “fiat” money, which has value by agreement alone.
Duration: 30 min

03: How Is Money Created?

Study the invention of paper money in the history of goldsmiths issuing paper receipts backed by gold deposits. Then trace the important history of the gold standard, upon which nations pegged the value of currencies, and the reasons the gold standard was abandoned in 1971.
Duration: 30 min

04: Monetary History of the United States

The U.S. government’s role in financial affairs has been historically controversial. Learn about the two failed attempts in early U.S. history to establish a central bank, followed by the system of “national” banks chartered in the 1860s. Follow key issues surrounding national currency and coinage, leading to the Federal Reserve Act of 1913.
Duration: 28 min

05: Local Currencies and Nonstandard Banks

Finance is not just the business of the wealthy. Here, study nontraditional models for solving economic problems, from examples of local currencies galvanizing local economies to “microfinance” arrangements such as Bangladesh’s Grameen Bank, which create highly successful savings and loan programs for the poor.
Duration: 30 min

06: How Inflation Erodes the Value of Money

This lecture investigates the factors governing inflation, beginning with an inflation history of the United States over the last century. Learn about the correlation between inflation and the consumer price index, and how inflation is triggered by excess money growth. Also, review inflation’s detrimental effects and costs.
Duration: 30 min

07: Hyperinflation Is the Repudiation of Money

The history of hyperinflation offers both a compelling story and a cautionary tale of inflation’s damaging effects. Trace the root causes of extreme inflation in governments that finance deficits by printing new money. Then, study key cases of hyperinflation, its “vicious circle” quality, and the inevitable fiscal reform that ends it.
Duration: 29 min

08: Saving – The Source of Funds for Investment

Explore the meaning of “investment” in economics as increases to a nation’s “capital stock”—the equipment, technology, and human resources used in the production process. Then see how investment is made possible by domestic saving and foreign borrowing, and how investment is critically related to economic growth.
Duration: 32 min

09: The Real Rate of Interest

Understanding how interest rates work sheds important light on our economy. Study the difference between the “nominal” or agreed-upon interest rate in a loan transaction and the “real” rate of interest. Learn how the “real” rate factors in the rate of inflation to determine the actual cost/benefit of borrowing and lending.
Duration: 28 min

10: Financial Intermediaries

Financial intermediaries or “middlemen” play an important role in modern economies. Investigate how intermediaries such as commercial banks facilitate borrowing and lending, providing valuable services to each party. Study the fundamental types of intermediary institutions, including savings banks, mutual funds, money market funds, and insurance companies.
Duration: 32 min

11: Commercial Banks

In learning how commercial banks operate, examine the sources from which banks acquire their funds and how they use the funds they acquire, as well as how assets and liabilities function within banks. Study three formal definitions of money and how banks literally create money in the process of making loans.
Duration: 30 min

12: Central Banks

Investigate the role and importance of central banks as they provide banking services to commercial banks, focusing on the U.S. Federal Reserve. See how central banks control an economy’s interest rates and create money, and how their ability to increase or decrease the money supply makes them the world’s most powerful financial institutions.
Duration: 29 min

13: Present Value

Present value is an important formula for computing the current value of payments that will be received or made in the future. Learn how present value is used, in the examples of determining the current value of a savings bond and how much to save per year for future college tuition.
Duration: 30 min

14: Probability, Expected Value, and Uncertainty

This lecture explores how financial decisions are made in the face of future uncertainty. Using examples of both a dice game and a real-world business strategy, study the statistical tool of “expected value” as a method of predicting possible outcomes and see how the probability of expected profits influences business decisions.
Duration: 29 min

15: Risk and Risk Aversion

Economists have developed ways of assessing people’s willingness to take on risk in financial decision-making. With reference to the “St. Petersburg Paradox,” a classic problem relating to odds in gambling, observe how individuals tend to value the dollars they might lose more highly than the dollars they might win.
Duration: 29 min

16: An Introduction to Bond Markets

Bond markets play a key economic role by channeling funds from savers to government and private entities that need funding beyond their current revenues. Learn about the various types of bond instruments, including Treasury bills, notes, and bonds.
Duration: 31 min

17: Bond Prices and Yields

In a deeper look at bonds, investigate how secondary markets for bonds operate and what they offer investors. Study fundamental concepts including the “yield to maturity” of bonds and the “holding period yield” in understanding the link between bond prices and interest rates.
Duration: 30 min

18: How Economic Forces Affect Interest Rates

Changes in interest rates have widespread economic effects. Consider interest rates as market prices, set by the current market for credit, and see how interest rates are determined in the long run by patterns of saving and investment, and in the short run by factors such as government deficits and recessions.
Duration: 28 min

19: Why Interest Rates Move Together

The many interest rates in different areas of the economy tend to change together over time. Learn about the key factors that govern this, beginning with ways that interest rates adjust to expected changes in inflation. Observe also how risk in borrowing and lending affects the rate of interest.
Duration: 33 min

20: The Term Structure of Interest Rates

The formula known as the “Expectations Hypothesis” allows analysts to forecast future interest rates and conditions in the credit market. Understand the intuition behind the hypothesis and learn how it benefits borrowers considering mortgages and loans.
Duration: 32 min

21: Introduction to the Stock Market

Stock markets provide individuals the chance to share in the ownership and profits of corporations. Investigate the history of stock markets, their basic functions on behalf of investors, and how trades are made.
Duration: 30 min

22: Stock Price Fundamentals

What determines prices in the stock market? Approach this question first through the “market fundamentals” model of stock prices, linking a firm’s capital, profits, and dividends to its share price.
Duration: 32 min

23: Stock Market Bubbles and Irrational Exuberance

Study the phenomenon of stock market “bubbles,” in which prices are driven up without reference to profitability data. Grasp the “bubble” mind-set, which triggers speculative buying and selling based only on what others are paying.
Duration: 28 min

24: Derivative Securities

Derivative securities play an important role in finance by allowing business decision-makers and private investors to lower risk. See how derivative securities are created using underlying products and study the major types of derivatives, including stock options and mutual funds.
Duration: 32 min

25: Asymmetric Information

Asymmetric information occurs when one party in a financial transaction has more relevant information than another. Learn how this affects financial markets; discover why so few firms issue stocks and bonds, and why banks are so restrictive regarding loan practices.
Duration: 29 min

26: Regulation of Financial Firms

Consider the case for government bailouts of financial firms, and why such actions are in the public interest. Examine the types of government regulation of financial institutions and see how the history of bank regulation has been a “tug of war” between looser and stricter rules.
Duration: 31 min

27: Subprime Mortgage Crisis and Reregulation

The subprime mortgage crisis of 2008 offers a clear example of breakdown followed by regulatory reform. Trace the dramatic events that led to the crisis.
Duration: 31 min

28: Interest Rate Policy at the Fed and ECB

Investigate how the Federal Reserve raises and lowers short-term interest rates in pursuing its objectives of stabilizing prices and promoting a healthy economy.
Duration: 31 min

29: The Objectives of Monetary Policy

Explore the ways in which monetary policy on the part of central banks affects economies. Study the monetary policy mandates of several different nations.
Duration: 30 min

30: Should Central Banks Follow a Policy Rule?

Examine the case favoring predictable policy by the Fed in addressing economic events, compared with treating each event as unique.
Duration: 30 min

31: Extraordinary Tools for Extraordinary Times

Responding to the Great Recession of 2008, the Federal Reserve took unprecedented actions to address the crisis.
Duration: 29 min

32: Central Bank Independence

Learn how economists define and measure “independence” and “transparency” of the central banks of the world. Investigate whether greater independence of central banks is associated with desirable economic outcomes.
Duration: 32 min

33: The Foreign Exchange Value of the Dollar

Grasp how currency exchange rates operate based on demand and supply, and how this accounts for the devaluing of the U.S. dollar over the last two decades.
Duration: 29 min

34: Exchange Rates and International Banking

Investigate the factors that determine exchange rates in both the short and long run and how international banks play an ever-increasing role in finance.
Duration: 32 min

35: Monetary Policy Coordination

Using specific examples, evaluate the benefits of coordinated interest rate policy versus the outcomes of given nations acting alone.
Duration: 30 min

36: Challenges for the Future

In concluding, consider three key questions facing the world’s financial systems: Will the United States solve its chronic deficit problem? Will the euro survive?
Duration: 34 min