Preface

Guided tour

Authors’ acknowledgements

Publisher’s acknowledgements

Introduction

Part 1 Introduction

1 Why study money, banking and financial markets?

Why study financial markets?

Why study financial institutions and banking?

Why study money and monetary policy?

Why study international finance?

How will we study money, banking and financial markets?

Web exercises

Concluding remarks

Summary

Key terms

Questions and problems

Web exercises

Notes

Web references

Appendix to Chapter 1 Defining aggregate output, income, the price level and the inflation rate

2 An overview of the financial system

Function of financial markets

Structure of financial markets

Financial market instruments

Internationalization of financial markets

Function of financial intermediaries: indirect finance

Types of financial intermediaries

Regulation of the financial system

Summary

Key terms

Questions and problems

Web exercises

Notes

Web references

3 What is money? A comparative approach to measuring money

Meaning of money

Functions of money

Evolution of the payments system

Measuring money

Which is the most accurate monetary aggregate?

Summary

Key terms

Questions and problems

Web exercises

Notes

Web references

Part 2 Financial markets

4 Understanding interest rates

Measuring interest rates

The distinction between interest rates and returns

The distinction between real and nominal interest rates

Summary

Key terms

Questions and problems

Web exercises

Notes

Web references

5 The behaviour of interest rates

Determinants of asset demand

Supply and demand in the bond market

Changes in equilibrium interest rates

Supply and demand in the market for money: the liquidity preference framework

Changes in equilibrium interest rates in the liquidity preference framework

Summary

Key terms

Questions and problems

Web exercises

Notes

Web references

6 The risk and term structure of interest rates

Risk structure of interest rates

Term structure of interest rates

Summary

Key terms

Questions and problems

Web exercises

Notes

Web references

7 The stock market, the theory of rational expectations and the efficient market hypothesis

Computing the price of common stock

How the market sets stock prices

The theory of rational expectations

The efficient market hypothesis: rational expectations in financial markets

Behavioural finance

Summary

Key terms

Questions and problems

Web exercises

Notes

Web references

Part 3 Financial institutions

8 An economic analysis of financial structure

Basic facts about financial structure throughout the world

Transaction costs

Asymmetric information: adverse selection and moral hazard

The lemons problem: how adverse selection influences financial structure

How moral hazard affects the choice between debt and equity contracts

How moral hazard influences financial structure in debt markets

Conflicts of interest

Summary

Key terms

Questions and problems

Web exercises

Notes

Web references

9 Financial crises and the subprime meltdown

Factors causing financial crises

Dynamics of past financial crises in developed countries

The subprime finan