We learned so much in course that applies to our everyday lives and the condition and operation of the country that I actually wish they had taught it back in high school. There was so much subject matter covered that it is difficult to narrow what I learned down to just three things. The textbook and supporting documentation and discussion pertained to the financial system. The financial system is basically how the money moves through our economy. Funds flow primarily through the financial markets which our book defines as; “Markets in which funds are transferred from people who have excess available funds to people who have shortage”. (Mishkin, 2010) The key is to keep the funds productively working in the economy. I will focus broadly and say that the three most important things I learned in this course were about money & financial system itself, the institutions that fuel the system and the Central Banks.
Let’s start with what money is and what it does. Money is “anything that is generally accepted in payment for goods and services.” (Mishkin, 2010) Money needs to have value to the people within a society in order to fill this role. One of the primary roles of money is to be used as payment for goods or services; it also reflects value or price levels and retains value over time. Currency is the actual form of the “acceptable” money. Money that is made of a valuable commodity, such as silver or gold, is called commodity money. As is typical of economies as they mature, the United States has moved away from commodity money to paper money. The money is backed not by the value of the commodity, but by a promise for payment.
The flow of funds happen in the financial markets as mentioned above. This isn’t a place like a supermarket or mall where you run in to grab a few things. These markets are where money is loaned by those who want to put it to productive use in the hopes of making a little profit on it in return. Examples of these markets are the stock market and the bond market. These markets exist throughout the developed world. Stocks are a share of ownership that you purchase in a company. The money is used to finance the company and the stock holder receives a share of the profit, known as a dividend. The stock holder owns the shares until they choose to sell them. Bonds are a security that helps to pay the debt of an institution. The bond holder is promised periodic payments for a specified amount of time.
There are two types of markets as well. The primary market is where new issues of securities, such as stocks and bonds, are sold to the initial buyers. Secondary markets are where existing securities are re-sold. The secondary market is also the more common market for the average person. An example would be the New York Stock Exchange.
Financial intermediaries are institutions that help to move funds from those with surplus to those who need them. Rather than work directly in the primary markets, we...