ECON 673: Financial Institutions and Monetary Policy

Prerequisite: Graduate standing

Credit Hours: (3)

Semester offered: Fall or Spring

This course deals with the general and specialized roles of financial institutions as well as their structure, regulation, markets and sources of funds. Monetary theory is explained with particular emphasis on its effects on financial markets.

Detailed Description of Content of the Course

The objective of this course is to familiarize graduate students with the structure, performance and conduct of the financial sector of the economy. In particular the bond market, the stock market, the foreign exchange market, and the banking sector of the economy will be analyzed. In addition, the process of money creation, its control by the central bank and the conduct of monetary policy will be studied. Finally, the effects of monetary policy actions upon the real, financial, and foreign sector of the economy will be examined.

Topic Outline

1. Money and the Economy
2. Commercial Banking and Deposit Creation
3. The Structure and Regulation of the Banking Industry
4. Sources and Uses of Bank Funds
5. Bank Profitability: Liquidity versus Earnings
6. Monetary Policy and the Economy
7. Monetary Policy and the Capital Markets
8. The Structure of Interest Rates

Detailed Description of Conduct of the Course

The following teaching strategies will be employed:

Lectures and discussions will be based on textbook and original journal articles. A paper will be required.

Goals and Objectives of the Course

At the end of the course the students should know:

1. The relationship of money to: (a) inflation, (b) business cycles, (c) interest rates, and (d) budget deficits.
2. The process of financial intermediation and innovation.
3. The workings of the bond, stock, and foreign exchange markets.
4. The structure and performance of the banking sector and its role in money creation.
5. The structure of central banking and its control of money creation.
6. The goals, tools, and practice of monetary policy.
7. The effects of monetary policy upon the real, monetary, and foreign sectors of the economy.

Assessment Measures

• Test I 250 Points
• Test II 250 Points
• Paper 200 Points
• Final Exam 300 Points

Grades are assigned according to the customary 10-pt. scale.

Other Course Information

Review and Approval

Date Action Reviewed by
March 1999 Revised