...University Baguio City FINANCIAL MANAGEMENT 4C MONETARY POLICY AND CENTRAL BANKING Prepared by: Roma De Guzman COURSE DESCRIPTION This course involves lengthy discussions on the financial services industry, in particular, policies relating thereto, as enacted through laws by the congress and as circulated through memos and circulars by the Banko Sentral ng Pilipinas. Emphases are on banks, banking and financial regulations, and risks on financial intermediation. It also focuses on topics such as money creation, central banking, demand and supply for money and money reserves. COURSE ORGANIZATION This is a 3-unit lecture course where topics shall be presented by the instructor through various modes of teaching such as class discussion, class research and exercises, and class recitations. Quizzes shall be given per topic accordingly and exams will be conducted in accord with the university schedule. COURSE OBJECTIVES To further the student’s knowledge in the financial services industry. To equip the students with the proper skills, attitudes and values as espoused by the university to be applied in real life circumstances in line with the financial services industry. To provide students with opportunities to develop enough competence on basic banking and central banking, and demand-supply analysis for money on a macroeconomic level. COURSE TOPICS Prelims Central Banking Central Bank definition and short history (World) The Banko Sentral...
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...providing its economy with funds when commercial banks cannot cover a supply shortage. In other words, the central bank prevents the country's banking system from failing. However, the primary goal of central banks is to provide their countries' currencies with price stability by controlling inflation. A central bank also acts as the regulatory authority of a country's monetary policy and is the sole provider and printer of notes and coins in circulation. Time has proved that the central bank can best function in these capacities by remaining independent from government fiscal policy and therefore uninfluenced by the political concerns of any regime. The central bank should also be completely divested of any commercial banking interests. The Rise of the Central Bank Today the central bank is government owned but separate from the country's ministry of finance. Although the central bank is frequently termed the "government's bank" because it handles the buying and selling of government bonds and other instruments, political decisions should not influence central bank operations. Of course, the nature of the relationship between the central bank and the ruling regime varies from country to country and continues to evolve with time. To ensure the stability of a country's currency, the central bank should be the regulator and authority in the banking and monetary systems. Historically, the role of the central bank has been growing, some may argue, since the establishment of the Bank...
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...progress by the author(s) and are published to elicit comments and to further debate. This paper stresses three factors that amplified the 1990s financial crisis in Ecuador, namely institutional weaknesses, rigidities in public finances, and high financial dollarization. Institutional factors restricted the government’s ability to respond in a timely manner and efficiently enough to prevent the escalation of the banking crisis and spurred the adoption of suboptimal policy decisions. Public finance rigidities limited the government’s capacity to correct existing imbalances and the deteriorating fiscal stance associated with the costs of the financial crisis. Financial dollarization increasingly reduced the effectiveness of financial safety nets, fostered foreign currency demand, and accelerated a currency crisis, thereby further worsening the solvency of banks. These three factors reinforced each other, exacerbating costs as the economy went through a triple banking, currency, and fiscal crisis. JEL Classification Numbers: G21, G28, N46, O54 Keywords: banking crisis, institutions, fiscal policy, monetary...
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...Chapter – 3.0 An overview – Banking sector & Stock Exchange and Conceptual framework – Macroeconomic variable |3.1 An overview of Banking sector and Stock market of Bangladesh | We are interested in investigating the relationship between stock prices and macroeconomic variables because individual investors can earn abnormal profits by exploiting this relationship and the existence of this utilizable opportunity would then dangerously distort the market’s ability to proficiently allocate scarce resources. In other word, the stock market will lose its informational efficiency. Informational efficiency is defined as at any given time, stock prices fully reflect all available information of the market. Thus, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. Identifying the relationship or informational efficiency thus can be used to correct the current economic stabilization policies. Therefore, the issue of whether stock prices and macroeconomic variables are related or not have received considerable attention. This paper provides empirical evidence of the relationship between stock prices with each of the macroeconomic variables: exchange rate, inflation rate, money supply variables and so on. The knowledge of the prevailing relationship between stock prices one the one hand, and micro variables like market...
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...FINC-941: Macroeconomic Policy and Global Capital Markets Fall 2011 Syllabus Linked Non-textbook Readings Starred readings are optional. Week 1: Economic growth across countries: measurement and the facts Charles Jones (1997), "On the Evolution of the World Income Distribution," Journal of Economic Perspectives, 11, 19-36 “Stumble or Fall” The Economist, January 10, 2009 (on-line only) * “Argentina threatens inflation analysts with fine” Financial Times, Feb 4, 2010 *“What’s the Point of Macro?” by Dylan Grice *“An Inflation Debate Brews Over Intangibles at the Mall” Wall Street Journal, May 9, 2005 *“Measuring What Matters” The Economist, September 17, 2009 Weeks 2 and 3: International economic growth and development Capital accumulation Robert E. Hall and Charles I. Jones, "Why Do Some Countries Produce So Much More Output per Worker than Others?" Quarterly Journal of Economics, February 1999, Vol. 114, pp. 83-116. *John Fernald and Brent Neiman, “Growth Accounting with Misallocation: Or, Doing Less with More in Singapore” AEJ Macroeconomics, 3(2) April 2011 (Better than the optional article on the reading list, that you can still google.) Institutions “The Road to Hell is Unpaved” Economist, December 19, 2002 (on-line only) The Panda has Two Faces, The Economist, March 31, 3010 (on-line only) “Mad, Bad and Dangerous to Know” The Economist, Jan 14, 2010 (on-line only) Openness *“The Free Trade Fix” New York...
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...Week 5 Learning Team C Reflection ECO/561 September 22, 2014 David Mozinski Week 5 Learning Team C Reflection This week’s material discussed more macroeconomics and the global economies. It ran the gamut from basic macroeconomic concepts all the way through understanding the causes and effects of financial crises. The objectives were to accurately project the effects of credit markets on the economy and global economic conditions regarding trade and specialization business decisions. Learning Team C will demonstrate their academic findings and discuss the areas of difficulty and how the material relates to their individual fields. Topics in Which We Felt Comfortable Primary comfort among the team was found in the arena of money creation, the money multiplier, lending, borrowing, and interest. Topics primarily focused on how commercial banks alter the money supply, either by creating money or altering its value. Recognizing that shifts of the money supply from one bank to another can have an impact on an institution ability to make loans as well. A collapse of single banks can have severe and long lasting negative effects on other banks and on the real economy (Lengnick and et. al., 2013). Although the majority of the team felt most fluent with similar topics, one team member felt different; noting that it was difficult to find solace with most of the topics, but identified that income and consumption was palatable. Most Difficult Learning Objectives This week...
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...Assignment 4 Pick a macroeconomic topic of your choice and write a short essay describing the basic concepts associated with the topic as well as the impact on the overall economy. Who is influencing or in charge of the macroeconomic topic and how does the topic contribute to achieving the goals of Macroeconomics (Which goals does the topic relate to)? Fiat Money Fiat money is the money that is declared legal tender by the government and is not backed by reserves or physical commodities such as gold or silver. The real value or intrinsic value is not equal to the monetary face value or the value that is declared on it. The monetary value of fiat money is a matter of public confidence in the political or economic stability of the government or issuer. In Canada, the issuer of fiat money is the Bank of Canada. The Bank of Canada declares our currency as legal tender. Fiat Money is important because it satisfies the characteristics that make our currency viable. First, it is generally and widely accepted by the people who use it. It is much more portable and easily divisible than precious metals such as gold. Security measures taken into account in currency design are important to avoid replication and counterfeiting. The other important characteristics in fiat money are durability and controllability. Fiat Money contributes to the goals of Macroeconomics by achieving consensus among the general population of its value and in the stability of the banking system. This allows creditors...
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...Monetary Policy and Its’ Effect on Macroeconomic Factors Monetary Policy and Its’ Effect on Macroeconomic Factors Edward Thaxton University of Phoenix MMPBL/501 Forces Influencing Business in the 21st Century Dr. Sangeeta Bishop March 8, 2010 Abstract This paper will illustrate the affects of The Fed, the creation of money and the monetary policy. The monetary policy has a direct impact upon aggregate demand, gross domestic product, unemployment, inflation, and interest rates. Monetary Policy and Its’ Effect on Macroeconomic Factors In earlier times traders used gold for transactions, and realized that it was inconvenient so they began to make deposits with goldsmiths. The goldsmiths provided the depositor a receipt for the value of their deposit of gold and people began to use the receipts as payments. The goldsmiths backed their receipts fully with the gold that they held in their vaults. These receipts were used as the first kind of paper money. Today, gold is no longer used as bank reserves. This was the beginning of the fractional reserve system of banking, in which reserves in bank vaults are a fraction of the total money supply. The creation of checkable deposit money by banks, limited by the amount of...
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...Block IV MACROECONOMICS – II UNIT 17 Inflation 1-14 UNIT 18 Banking and Money Supply 15-31 UNIT 19 International Trade and Balance of Payments 32-50 UNIT 20 Economic Indicators 51-62 UNIT 21 Business Cycles 63-71 UNIT 22 Economic Growth, Development and Planning 72-84 Economics for Managers Expert Committee Dr. J. Mahender Reddy Vice Chancellor IFHE (Deemed to be University) Hyderabad Prof. Y. K. Bhushan Vice Chancellor IU, Meghalaya Prof. Loveraj Takru Director, IBS Dehradun IU, Dehradun Course Preparation Team Prof. Ramalingam Meenakshisundaram IFHE (Deemed to be University) Hyderabad Ms. Pushpanjali Mikkilineni IFHE (Deemed to be University) Hyderabad Mr. Pijus Kanti Bhuin IU, Sikkim Ms. Preetaq Dutta Rai IU, Jharkhand Ranchi Prof. S S George Director, ICMR IFHE (Deemed to be University) Hyderabad Dr. O. P. Gupta Vice Chancellor IU, Nagaland Prof. D. S. Rao Director, IBS, Hyderabad IFHE (Deemed to be University) Hyderabad Ms. Hadiya Faheem IFHE (Deemed to be University) Hyderabad Mr. Mrinmoy Bhattacharjee IU, Mizoram Aizawal Prof. Tarak Nath Shah IU, Dehradun Mr. Manoj Kumar De IU, Tripura Agartala © The ICFAI University Press, All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying or otherwise – without prior permission in writing from The ICFAI University Press, Hyderabad. Ref. No. Eco Mgrs SLM – 09...
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...MP A R Munich Personal RePEc Archive Bank-specific, industry-specific and macroeconomic determinants of bank profitability Panayiotis Athanasoglou and Sophocles Brissimis and Matthaios Delis Bank of Greece June 2005 Online at http://mpra.ub.uni-muenchen.de/32026/ MPRA Paper No. 32026, posted 5. July 2011 14:01 UTC BANK OF GREECE BANK-SPECIFIC, INDUSTRY-SPECIFIC AND MACROECONOMIC DETERMINANTS OF BANK PROFITABILITY Panayiotis P. Athanasoglou Sophocles N. Brissimis Matthaios D. Delis Working Paper No. 25 June 2005 BANK-SPECIFIC, INDUSTRY-SPECIFIC AND MACROECONOMIC DETERMINANTS OF BANK PROFITABILITY Panayiotis P. Athanasoglou Bank of Greece Sophocles N. Brissimis Bank of Greece and University of Piraeus Matthaios D. Delis Athens University of Economics and Business ABSTRACT The aim of this study is to examine the effect of bank-specific, industry-specific and macroeconomic determinants of bank profitability, using an empirical framework that incorporates the traditional Structure-Conduct-Performance (SCP) hypothesis. To account for profit persistence, we apply a GMM technique to a panel of Greek banks that covers the period 1985-2001. The estimation results show that profitability persists to a moderate extent, indicating that departures from perfectly competitive market structures may not be that large. All bank-specific determinants, with the exception of size, affect bank profitability significantly in the anticipated way. However, no evidence is found...
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...Bulgaria under Currency Board | | | | 1997 – a crucial year for the Bulgarian banking system The real reforms in the Bulgarian banking sector started in 1997, after the introduction of the currency board in the country. Bulgaria's macroeconomic performance between the fall of communism and early 1997 was especially poor. The decent economic performance in the beginning later deteriorated into hyperinflation and negative growth of GDP. Hyperinflation reached almost 500 % in January 1997 and more than 2,000 % in March 1997. An extremely severe economic crisis began in May 1996 and reached its zenith in February 1997. The Bulgarian currency started falling and finally collapsed in February 1997 when it reached unprecedented levels of about 3000 Leva per dollar in February 1997, while foreign exchange reserves dried out. The average monthly wage plunged from over $127 in 1995 to under $25 in 1997. Currency Board Adoption The IMF started to press the Bulgarian authorities to introduce a CBA. With the worsening of the crisis by the spring of 1997, this plan was finally accepted and CBA was implemented on the 1st of July 1997 and actually brought hyperinflation down to around 5%. The Bulgarian currency was fixed to the DeutscheMark, the volume of currency circulation was linked to the hard currency reserves, and the currency board undertook the monetary policy management. A new stage of banking sector reform started: entirely new laws on BNB and commercial banks were adopted...
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...Current financial crisis Economic growth involves metamorphosis of the financial system. Forms of banks and bank money change. These changes, if not addressed, leave the banking system vulnerable to crisis. There is no greater challenge in economics than to understand and prevent financial crises. The financial crisis of 2007-2008 provides the opportunity to reassess our understanding of crises. All financial crises are at root bank runs, because bank debt—of all forms—is vulnerable to sudden exit by bank debt holders. The current crisis raises issues for crisis theory. And, empirically, studying crises is challenging because of small samples and incomplete data. *Written as a contribution for Trade, Globalization and Development: Essays in Honor of Kalyan Sanyal, edited by Sugata Marjit and Rajat Acharya (Springer Verlag; forthcoming). Some of this essay draws from material in my book Misunderstanding Financial Crises (Oxford University Press; forthcoming November 2012). I worked at AIG Financial Products as a consultant from 1996-2008. I thank Doug Diamond, Bengt Holmström, Arvind Krishnamurthy, and Guillermo Ordoňez for comments.1 1. Introduction Economic development does not result in the elimination of financial crises. The recent financial crisis of 2007-2009 in the United States and Europe shows that market economies, however much they grow and change, are still susceptible to collapse or near-collapse from financial crisis. This is a staggering thought...
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...1. Critically examine the effectiveness of various approaches that may be used to reduce macroeconomic instability. According to Mc Vaish (Macroeconomics theory, p123) Macroeconomics can be defined as the analysis of the economy wide aggregates such as the analysis of the total output and employment, total consumption, total investment, total saving and national product. Macroeconomic theory employs technique of general equilibrium in order to study the determination of the general price level, money supply, total employment and output levels and fluctuations in these aggregates magnitudes. A macroeconomic stable environment can be defined as one in which inflation is low and predictable, the exchange rate is near its equilibrium level, the government budget is well managed, the budget deficit relative to GDP is at a reasonable level and the use of central bank credit to finance the budget deficit is kept at a minimal level. Macroeconomic stability sends important signals to the private sector about the direction of economic policies and the credibility of authorities’ commitment to manage the economy efficiently. Such stability, by facilitating long term planning and investment decisions, encourages savings and capital accumulation by the private sector. Macroeconomic instability takes place in two forms namely exogenous shocks and inappropriate policies. Exogenous shocks (such as reversal capital flows, terms of trade and natural disasters) require compensatory action...
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...1 Introduction Banking is an important institution in the economy and plays a very important role in the economic life and economic growth of any society. While it is of common understanding that banking is not “The Economy”, it is agreed that the health of the country’s economy is closely related to the soundness of its banking system which can be sustained through strict regulations and supervision in order to monitor and control business risks such as Capital Risks, Liquidity Risks, Credit Risks, Exchange Risks, Operational Risks, Market Risks and Legal Risks. Bank regulations and bank supervision are required to facilitate a ‘Systematic Risk Reduction’ approach thus reducing the risk of adverse trading conditions and to ensure that Financial Institutions satisfy at least the minimum ‘Prudential’ requirements in order to reduce the risk factor that creditors are exposed to. Lack in regulations and slack in supervision may lead to Financial Institutions risking bankruptcy thus exposing their clients of potentially losing their investments and financial assets while distressing the country’s economy. 2 What is the actual function of a bank within an economy? Banks' traditional role is primarily that of an intermediary for money, i.e. granting loans, processing payments, accepting deposits, carrying out investments, etc... Although banks do not create new wealth, through borrowing, lending and related activities they facilitate...
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...Operational Definitions 9 1.9 Organization of the paper 9 Chapter Two ……………………………………………………………………………………...10 2 Literature Review 10 2.1 Measures of Bank Performance/Profitability 10 2.2 Factors Influencing Bank Performance/Profitability 10 2.3 The influence of Bank-specific factors on Bank Profitability 11 2.3.1 Capital Adequacy 11 2.3.2 Assets Quality 12 2.3.3 Management Efficiency: Operational Costs Efficiency 12 2.3.4 Earning ability: Diversification of Income 13 2.3.5 Liquidity 14 2.4 The Influence of Industry-specific Factors on bank profitability 14 2.4.1 Bank Size: 14 2.4.2 Market Concentration 14 2.5 The Influence of Macro-economic Factors on Profitability 15 2.5.1 Economic Growth 15 2.5.2 Inflation 15 2.6 Earlier Studies on Ethiopian Banking Industry 16 2.7 Conceptual Framework 19 Chapter Three …………………………………………………………………………………….20 3 Research Methodology 20 3.1 Research Design 20 3.2 Methods of Data Collection...
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